SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
              Annual Report Pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934 For the fiscal year ended January 4, 2002
                        Commission file number: 000-05083

                                  Saucony, Inc.
             (Exact name of registrant as specified in its charter)

   Massachusetts                                        04-1465840
   -------------                                        ----------
  (State or other jurisdiction of          (I.R.S. Employer Identification No.)
  incorporation or organization)

                     13 Centennial Drive, Peabody, MA 01960
                     ---------------------------------------
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (978) 532-9000
        Securities registered pursuant to Section 12(b) of the Act: None
                 Securities registered pursuant to Section 12(g)
                                  of the Act:

                    Class A Common Stock, $.33-1/3 par value
                    ----------------------------------------
                                (Title of class)
                    Class B Common Stock, $.33-1/3 par value
                    ----------------------------------------
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The aggregate market value of voting and non-voting  common equity stock held by
non-affiliates  of the  registrant,  as of March  14,  2002,  was  approximately
$27,645,000  (based on the closing  sale prices of the Class A Common  Stock and
Class B Common  Stock on such date as reported on the Nasdaq  National  Market).
Shares of Class A Common Stock and Class B Common  Stock held by each  executive
officer  and  director  of  the  registrant  and by  each  entity  known  to the
registrant to beneficially  own 10% or more of the outstanding  shares of either
the Class A Common Stock or the Class B Common Stock have been  excluded in that
such  persons  may  be  deemed  to  be  affiliates  of  the   registrant.   This
determination of affiliate status is not necessarily a conclusive  determination
for other purposes.

The number of shares of the  registrant's  Class A Common  Stock,  $.33-1/3  par
value,  and Class B Common Stock,  $.33-1/3 par value,  outstanding on March 14,
2002 was 2,566,747 and 3,520,829, respectively.

Portions of the  registrant's  Definitive  Proxy  Statement  for its 2002 Annual
Meeting of  Stockholders  scheduled  to be held on May 23, 2002 (the "2002 Proxy
Statement"), which will be filed with the Securities and Exchange Commission not
later than 120 days after January 4, 2002,  are  incorporated  by reference into
Part III of this Annual Report on Form 10-K.  With the exception of the portions
of the 2002 Proxy Statement  expressly  incorporated  into this Annual Report on
Form 10-K by reference,  such document shall not be deemed filed as part of this
Annual Report on Form 10-K.


PART I


ITEM 1 - BUSINESS

Overview

We design and market  performance-oriented  athletic footwear,  athletic apparel
and casual leather footwear. Our principal products are:

o        technical running, walking and outdoor trail shoes, which we sell under
         the Saucony brand name;

o        technical  running shoe models from the early  1980's,  which we
         reintroduced  in 1998, as Saucony  "Originals",  our classic
         footwear line;

o        athletic apparel, which we sell under the Hind brand name;

o        shoes for coaches and officials and casual leather walking and
         workplace footwear, which we sell under the Spot-bilt brand name.


Our products are sold in the United  States at more than 5,500 retail  locations
and at our 11  factory  outlet  stores  and  outside  the  United  States  in 29
countries through 20 distributors  located  throughout the world. For the fiscal
year ended January 4, 2002, we generated total sales of $132.3 million.

On November 9, 2001, we announced the cessation of  manufacturing  operations at
our Bangor,  Maine facility.  Footwear production concluded in mid-January 2002.
During  the  fourth   quarter  of  fiscal  2001,   we  determined  to  close  an
underperforming  retail  store and  relocated  our Asian  sourcing  and  quality
control function to China,  resulting in the closure of our Taiwan office.  As a
result of these actions, we incurred non-recurring charges of $2.1 million, $1.3
million after-tax, or $0.21 per share after-tax, in the fourth quarter of fiscal
2001. Additionally,  we are phasing out our Hyde Authentics footwear line during
the first half of fiscal 2002.

Saucony(R),  Spot-bilt(R),  GRID(R),  Hyde(R),  and Hind(R)  are our  registered
trademarks.  This annual report on Form 10-K also includes  other service marks,
trademarks and trade names of ours and of companies other than us.


Segments

Our business is  organized  into two  operating  segments.  The Saucony  segment
consists of Saucony(R)  technical and Originals  footwear,  and Saucony apparel.
The Other  Products  segment  consists  of  Hind(R)  athletic  apparel,  Hyde(R)
Authentics  footwear and Spot-bilt(R) shoes for coaches and officials and casual
leather walking and workplace  footwear,  together with sales of our products at
our 11 factory outlet stores.

The following  table sets forth the  approximate  contribution  to net sales (in
dollars and as a  percentage  of  consolidated  net sales)  attributable  to our
Saucony  segment and our Other  Products  segment for the periods and geographic
areas indicated.


<PAGE>
<TABLE>
<CAPTION>



                                                              Net Sales
                                                        (dollars in thousands)

                                   Fiscal 2001                 Fiscal 2000 (1)             Fiscal 1999 (1)
                            ----------------------         ---------------------        --------------------
                                 $           %                  $           %                $           %
                                 -           -                  -           -                -           -
<S>                         <C>               <C>          <C>               <C>        <C>              <C>
  Saucony
      Domestic..............$   86,414        65%          $  126,758        75%        $  116,246       75%
      International.........    23,878        18%              19,710        12%            16,814       11%
                            ----------    -------          ----------    -------        ----------   -------
      Total.................$  110,292        83%          $  146,468        87%        $  133,060       86%
                            ----------    -------          ----------    -------        ----------   -------

   Other Products
      Domestic..............$   20,070        15%          $   19,035        12%        $   20,148       13%
      International.........     1,899         2%               2,294         1%             2,250        1%
                            ----------    -------          ----------    -------        ----------   -------
      Total.................$   21,969        17%          $   21,329        13%        $   22,398       14%
                            ----------    -------          ----------    -------        ----------   -------

   Total....................$  132,261       100%          $  167,797       100%        $  155,458      100%
                            ==========    =======          ==========       ====        ==========   =======

-----------------

(1) See Note 1 to our Consolidated Financial Statements regarding the adoption
of EITF 00-10.
</TABLE>


For  further  financial  information   concerning  our  operating  segments  and
geographic  areas,  please  see  Notes 15 and 16 to our  Consolidated  Financial
Statements in this Annual Report on Form 10-K.


Products

Footwear

Technical Footwear. We sell performance running, walking and outdoor trail shoes
for athletes under the Saucony brand name, which has been marketed in the United
States for over 30 years.  A  substantial  majority  of sales are in the running
shoe  category.  We have several  different  products  within each Saucony brand
category.  These  products have  different  designs and  features,  resulting in
different cushioning, stability, support characteristics and prices.

We design and market  separate  lines for men and women  within  most  technical
footwear categories. In keeping with our emphasis on performance,  we market and
sell our technical  footwear to athletes who have a high  participation  rate in
their sport of choice.  We address this market  through our "Loyal to the Sport"
advertising  campaign. We believe that these consumers are more brand loyal than
those who buy athletic  footwear for casual use. The suggested  domestic  retail
prices for most of our  technical  footwear  products are in the range of $50 to
$90 per pair, with our  top-of-the-line  running shoes having suggested domestic
retail prices of up to $130 per pair.  During fiscal 2001 we introduced  several
new shoes  targeted at the  mid-priced  footwear  segment,  which is the largest
segment of the running shoe market,  with retail prices  ranging from $60 to $80
per pair.

The Saucony brand is recognized for its technical innovation and performance. As
a result of our application of  biomechanical  technology in the design process,
we believe that our Saucony  footwear has a  distinctive  "fit and feel" that is
attractive  to  athletic  users.  A key element in the design of our shoes is an
anatomically  correct  toe and heel  configuration  that  provides  support  and
comfort for the particular activity for which the shoe is designed.

We build a variety of technical  features into our shoes.  Most of our technical
running and other athletic shoes incorporate our Ground Reaction Inertia Device,
or GRID  system,  an  innovative  midsole  system that  employs  molded  strings
engineered  to create a feeling  similar to that of the "sweet spot" of a tennis
racquet. In contrast with conventional  athletic shoe midsoles,  the GRID system
is designed to react to various stress forces  differently,  thereby  maximizing
shock absorption and minimizing rear foot motion.  We have continually  improved
the GRID system since it was first introduced in 1991.

During  fiscal 2001, we began to  incorporate  our newest  proprietary  footwear
technology,  Custom Ride Management,  into our core technical footwear products.
Custom Ride  Management  technology  allows us to tailor shoes to the individual
characteristics  of a  runner,  including  height,  weight,  foot  size and gait
cycles.  By doing so,  it allows  athletes  to select a level of  cushioning  or
stability based on their need or preference.  We have  incorporated  Custom Ride
Management  into one running model,  scheduled for shipment in the first quarter
of fiscal 2002 and plan to extend this technology to an additional running model
scheduled for shipment in the second  quarter of fiscal 2002 and a walking model
in fiscal 2003.

We design our Saucony  technical  cross  training,  women's  walking and outdoor
technical  trail shoes with many of the same  performance  features and "fit and
feel"  characteristics  as are found in Saucony technical running shoes.  During
fiscal 2001, our most popular non-running  technical athletic shoe was a woman's
performance walking shoe.

Technical  footwear  accounted for approximately  61%, 51% and 48% of our fiscal
2001, fiscal 2000 and fiscal 1999 consolidated net sales, respectively.

Originals  Footwear.  In 1998, we reintroduced a number of our technical running
shoe models from the early  1980's under the name  "Originals."  These shoes are
designed  to appeal to  younger  consumers  who do not  generally  wear them for
athletic purposes.  We believe our Originals shoes have benefited from the trend
toward  "retro"  products in  footwear  and  apparel.  We offer these shoes in a
variety  of styles  with over 100  combinations  of colors  and  materials.  The
suggested  retail  prices for our  Originals  are in the range of $40 to $60 per
pair.

Our initial Originals offering consisted of two models, the "Jazz Originals" and
the "Shadow  Originals." In light of the success of these products,  we expanded
the  Originals  product  line to include  color and material  variations  on our
initial Originals and have introduced  children's models. During fiscal 2001, we
introduced   additional   Originals  products,   including   contemporary-styled
reintroductions  of our technical  running shoe models from the early 1980's and
lifestyle footwear designed for the 12 to 25 year old footwear consumer.

Originals  accounted  for  approximately  21%,  35% and 37% of our fiscal  2001,
fiscal 2000 and fiscal 1999 consolidated net sales, respectively.

Spot-bilt

We sell shoes for coaches and officials and casual leather walking and workplace
footwear under the Spot-bilt brand name through the same  distribution  channels
as our Saucony brand shoes.

Athletic Apparel

Hind

We sell a full line of technical  apparel under the Hind brand name for use in a
variety of sports,  including  bicycling,  swimming and running. We believe that
our Hind products have a reputation  among athletes for  delivering  comfort and
performance.  Most of our Hind  products  incorporate  our  moisture  management
technology,  which  transfers  moisture  away from the wearer's  skin to enhance
comfort.  We  frequently  add  innovations  to our Hind product  offerings in an
effort to incorporate the latest fabric technology.

Saucony

We also market  athletic  apparel under the Saucony label. We target our Saucony
apparel line at the  mainstream  running  consumer.  We believe that our Saucony
athletic apparel supports our Saucony  athletic  footwear  products by enhancing
the visibility of the Saucony brand.

Product Design and Development

We believe  that the  technical  performance  of our Saucony  footwear and other
product  lines is  important  to the  ultimate  consumers  of our  products.  We
continually  strive to produce  products that improve  athletic  performance and
maximize comfort.  We use the consulting  services of professional  designers as
well as podiatrists, orthopedists, athletes, trainers and coaches as part of our
product  development  program.  We maintain a staff of 16 design and development
specialists  in  Peabody,  Massachusetts  and  Boulder,  Colorado  to  undertake
continuing product development.

In fiscal 2001 we spent  approximately  $1.14 million on our product development
programs,  compared  to  approximately  $1.08  million in fiscal  2000 and $1.68
million in fiscal 1999. Most of our research and development expenditures relate
to Saucony brand footwear products.


Sales and Marketing

Saucony

We sell our Saucony  footwear  products at more than 5,500 retail outlets in the
United  States,   primarily  higher-end,   full-margin  sporting  goods  chains,
independent  sporting  goods  stores,  athletic  footwear  specialty  stores and
department stores.  Retail outlets include Foot Locker,  Lady Foot Locker,  Road
Runner Sports,  The Shoe Show,  Hibbett Sporting Goods,  FootStar and The Finish
Line.

We maintain a corporate  sales group that is directly  responsible for the sales
activity in our largest 43  accounts.  We also sell our  footwear and apparel to
retail  outlets  in the United  States  through  12  independent  manufacturers'
agents, whose organizations employ  approximately 42 sales  representatives.  We
coordinate  the  efforts  of  these  representatives  through  our  field  sales
management group. Our web site (saucony.com) receives thousands of "hits" weekly
from consumers  looking for new product  information and race and event data, as
well as general Saucony information.

We sell our Saucony products  outside the United States in 29 countries  through
20 distributors  located throughout the world,  through our Canadian subsidiary,
in which  we hold an 85%  ownership  interest,  and  through  our  wholly  owned
subsidiaries located in the Netherlands and the United Kingdom.

We strive to enhance our  reputation and image in the  marketplace  and increase
recognition of the Saucony brand name by advertising our products  through print
media and  television  advertising.  For our  technical  footwear,  we advertise
primarily in magazines  such as "Runner's  World,"  "Men's  Health,"  "Outside",
"Shape" and "Cooking  Light." We also sponsor  sporting  events and telecasts to
increase  brand  awareness and the image of our technical  footwear to athletes.
Examples  include  "Saucony  Running  and  Racing"  seen  monthly  on  ESPN  and
sponsorship  of the Los Angeles  Marathon.  To build in-store  presence,  we use
account-specific and in-store promotions,  such as athlete appearances,  special
events and  discounts  for store  employee  purchases of our  products.  For our
Originals line, we generally  advertise in "lifestyle"  magazines that target 12
to 25 year olds, such as "ESPN," "Maxim," "Jane", "Teen People" and "Vibe."

Most of our  advertising  and  promotional  programs  for our Saucony  brand are
directed toward the ultimate consumer.  We also promote the Saucony brand to the
retail trade through  attendance at trade shows and similar events.  We employ a
cooperative  advertising  program,  which is intended  to  maximize  advertising
resources by having our  retailers  share in the cost of  promoting  our Saucony
brand in print  advertising,  while  affording our retailers the  opportunity to
promote their stores.

Other Products

We sell  our Hind  products  domestically  and  internationally  at  independent
sporting  goods  stores  and  specialty  sporting  equipment  stores  through  8
independent  manufacturers'  agents, whose organizations employ approximately 35
sales  representatives.  We market our Spot-bilt  line through our Saucony brand
distribution   channels  and  directly  to  customers  through  our  website  at
Spotbilt.com.

Factory Stores

We currently operate 11 factory outlet stores at which we sell our Saucony, Hind
and Spot-bilt  products.  To avoid competing against  full-margin retail outlets
for these  products,  we  generally  limit the items  offered at these stores to
products with cosmetic defects, discontinued merchandise and certain slow-moving
products.  As part of our growth  strategy,  we plan to open clusters of factory
stores in selected regions where we believe the Saucony brand is underdeveloped.
We believe that this approach will  strengthen  Saucony brand name  recognition.
During fiscal 2001, we opened two new factory outlet stores. In January 2002, we
closed one underperforming store.

Suppliers

Prior to December 2001, we assembled a majority of our domestically sold Saucony
technical footwear at our Bangor,  Maine  manufacturing  facility,  largely with
components sourced from independent  manufacturers located overseas. As a result
of our decision to cease  footwear  production  in Maine,  independent  overseas
manufacturers  produce  all of our Saucony  products,  including  our  Originals
products, and our Spot-bilt products.

The overseas  footwear  manufacturers  that supply products to us are located in
Asia,  principally in China. We select footwear  manufacturers  in large part on
the basis of our prior  experience with the manufacturer and the availability of
production capacity. We have developed long-term relationships with key footwear
manufacturers  that we believe  have yielded many  benefits,  including  quality
control,   favorable  costs,   flexible  working  arrangements  and  predictable
production  capacity.  Although to date we have not  experienced  difficulty  in
obtaining  manufacturing  services,  we  seek  to  develop  additional  overseas
manufacturing  sources from time to time, both to increase our sourcing capacity
and to obtain alternative sources of supply.

We perform  an array of  quality  control  procedures  at various  stages of the
production process, from testing of product prototypes prior to manufacture,  to
inspection of finished goods prior to shipment.  Our quality  control program is
designed   to  ensure  that   finished   goods  meet  our   established   design
specifications  and high quality  standards.  During  fiscal 2001, we closed our
Taiwan office and relocated our sourcing and quality control  function to China.
We employ  approximately 22 Saucony footwear quality control personnel in China.
Our personnel in China  regularly  visit our footwear  manufacturers  throughout
Asia to  monitor,  oversee  and  improve  the  quality  control  and  production
processes.

We contract with third parties for the manufacture of our Hind apparel,  most of
which is manufactured in the United States of domestically sourced fabrics.

Raw materials  required for the manufacture of our products,  including leather,
rubber, nylon and other fabrics, are generally available in the country in which
our  products  are  manufactured.  We and our  suppliers  have  not  experienced
difficulty in satisfying raw material needs to date.

The number of our foreign suppliers and the percentage of products sourced by us
from particular  foreign suppliers varies from time to time. During fiscal 2001,
we purchased  footwear products from approximately six overseas  suppliers.  One
such supplier,  located in China,  accounted for  approximately 39% of our total
overseas footwear purchases by dollar volume.

In December 2001, we entered into  Manufacturing and Supply Agreements with four
of our overseas  footwear  suppliers.  The agreements which expire one year from
their  effective  dates  and  are  renewable  annually,   create  a  performance
management  process and  provide for  financial  penalties  should the  footwear
suppliers fail to attain the requirements contained in the agreements.

Although we compete with other  athletic shoe and apparel  companies,  including
companies that are much larger than us, for access to production facilities,  we
believe that our relationships with our footwear and other suppliers are strong.
We also  believe  that we have the  ability to develop,  over time,  alternative
sources in various countries for footwear and other products that we source from
our  current  suppliers.  However,  in the event of a supply  interruption,  our
operations  could be materially  and adversely  affected if a substantial  delay
occurred in locating and securing alternative sources of supply.

Distribution and Inventory

We distribute our products from our owned warehouses in Massachusetts and leased
warehouses  in  Canada  and The  Netherlands,  as well  as  through  third-party
operated warehouse facilities located in California and the United Kingdom.

To accommodate our domestic customers' requirements and plan for our own product
needs,  we employ a "futures" order program for most of our products under which
we take orders in advance of the  selling  season for a  particular  product and
commit to ship the product to the  customer in time for the selling  season.  We
offer our customers price  discounts and extended  payment terms as an incentive
for using  this  ordering  program.  Our  futures  order  program  is similar to
programs offered by other athletic footwear companies.

We also  maintain an  open-stock  inventory  of our  technical  and Hind apparel
products,  but not our  Originals  products,  so that we can satisfy  retailers'
orders on an "at-once"  basis.  We sell our Originals line of footwear only on a
"futures" basis,  with no planned  inventory  position,  because we believe that
demand for products  from our  Originals  line is more closely tied to style and
fashion  trends than demand for our other  products.  By  maintaining no planned
inventory  of our  Originals  line,  we seek to minimize  the risk of  inventory
obsolescence that can result from unanticipated changes in consumer preferences.
We are,  however,  subject to inventory  risk for our Originals  products in the
event of significant order cancellations.

Backlog

The athletic and casual  footwear and athletic  apparel  industries  in which we
compete  are subject to seasonal  sales  fluctuations.  Sales of our Saucony and
other  footwear  brands are generally  highest in the first and third  quarters,
while  sales of our Hind  athletic  apparel  are highest in the third and fourth
quarters.  Because products sold on an "at once" basis are generally  shipped as
orders are  received,  our  backlog  relates  primarily  to  products  sold on a
"futures" basis.

Our backlog of unfilled  orders was  approximately  $42.5  million at January 4,
2002 and $66.4  million at January 5, 2001. We expect that all of our backlog at
January 4, 2002 will be shipped in fiscal 2002,  provided  that our customers do
not cancel their  orders.  Our backlog  does not  necessarily  represent  actual
future  shipments,  because  orders may be  cancelled by our  customers  without
financial  penalty.  Also,  the rate of customer  order  cancellations  can vary
quarter-to-quarter and year-to-year.

During 2001,  we did not derive more than 10% of our  consolidated  revenue from
sales to one customer.

Trade Policy

Our practice of sourcing products overseas, with subsequent importation into the
United States,  exposes us to possible product supply  disruptions and increased
costs in the event of actions by United  States or foreign  government  agencies
adverse to continued trade or the enactment of legislation that restricts trade.

For example,  we import significant amounts of our footwear products from China.
On December 11, 2001, China acceded to the World Trade Organization  ("WTO") and
thus now  enjoys  Permanent  Normal  Trade  Relations  with the  United  States.
Therefore,  China receives the same favorable  tariff  treatment that the United
States extends to its other "normal" trading partners.  However,  even though it
has  joined the WTO,  scrutiny  of China's  trading  practices  is not likely to
subside.   There  will  be  continuing  pressure  on  China  to  honor  its  WTO
commitments, particularly those relating to intellectual property protection. If
China does not abide by WTO rules,  the United States may come under pressure to
impose  sanctions  such as duties or quotas on imports  from China.  If any such
action  were to include  imports  of  footwear  products  from  China,  it could
significantly add to our cost of goods and could restrict our supply of products
from that country.

We are unable to predict whether additional United States customs duties, quotas
or other  restrictions  may be imposed in the future upon the importation of our
products.   Any  such   occurrences   might   adversely   affect  our  sales  or
profitability, possibly materially.

Competition

Competition is intense in the markets in which we sell our products.  We compete
with a large number of other  companies,  both  domestic  and  foreign.  Several
competitors are large organizations with diversified  product lines,  well-known
brands and financial, distribution and marketing resources substantially greater
than ours.  The principal  competitors  for our Saucony  products are Nike,  New
Balance and Asics.  The  principal  competitors  for our Hind products are Nike,
Pearl Izumi and TYR. We compete based on a variety of factors,  including price,
product style, durability and quality, product design and technical performance,
brand  image and  awareness,  marketing  and  promotion  and our ability to meet
delivery commitments to retailers.  We believe that we are competitive in all of
these areas.

Trademarks

We use  trademarks  on  nearly  all of our  products  and  believe  that  having
distinctive  marks is an important  factor in marketing  our  products.  We have
registered our  Saucony(R),  Spot-bilt(R),  GRID(R),  Hyde(R) and Hind(R) marks,
among others,  in the United States. We have also registered some of these marks
in a  number  of  foreign  countries.  Although  we  have  a  foreign  trademark
registration  program for selected  marks, we may not be able to register or use
such marks in each foreign country in which we seek registration.

Employees

As of January 4, 2002, we employed approximately 375 people worldwide.  Of these
employees, approximately 307 were in the United States and approximately 68 were
in foreign locations.  We believe that our employee relations are excellent.  We
have  never  experienced  a strike  or other  work  stoppage.  Approximately  24
employees in our Peabody, Massachusetts warehouse were represented by a union as
of January 4, 2002.  None of our other  employees are  represented by a union or
are subject to a  collective  bargaining  agreement.  The closing of our Bangor,
Maine facility in January 2002 resulted in the termination of 104 employees,  of
which 61 were terminated  subsequent to January 4, 2002,  reducing our worldwide
employment to 314 people.


<PAGE>


Executive Officers of the Registrant

Our executive officers are as follows:

       Name                    Age                     Position
----------------------         ---       ---------------------------------------

John H. Fisher                 54        President, Chief Executive Officer
                                         and Director

Charles A. Gottesman           51        Executive Vice President,
                                         Business Development
                                         and Director

Michael Umana                  39        Senior Vice President, Finance,
                                         Chief Operating and Financial Officer
                                         and Treasurer

Wolfgang Schweim               49        President, Saucony International

Michael Jeppesen               42        Senior Vice President, Manufacturing
                                         and Design

Roger P. Deschenes             43        Vice President, Controller and
                                         Chief Accounting Officer



John H. Fisher has served as our Chief  Executive  Officer  since  1991.  He was
elected our President and Chief Operating Officer in 1985 after having served as
our Executive Vice President from 1981 to 1985 and as our Vice President,  Sales
from 1979 and 1981.  Mr. Fisher is a member of the World  Federation of Sporting
Goods Industries, is the former Chairman of the Athletic Footwear Council of the
Sporting  Goods  Manufacturers  Association,  and is a member of  various  civic
associations.  Mr. Fisher became a director in 1980. He is the brother-in-law of
Charles A. Gottesman.

Charles  A.  Gottesman  has served as our  Executive  Vice  President,  Business
Development since July 2001. He served as our Executive Vice President and Chief
Operating Officer from 1992 to July 2001, our Executive Vice President,  Finance
from  1989 to 1992,  our  Senior  Vice  President  from  1987 to 1989,  our Vice
President  from 1985 to 1987,  and our  Treasurer  from 1983 to July  2001.  Mr.
Gottesman became a director in 1983. He is the brother-in-law of John H. Fisher.

Michael Umana has served as our Senior Vice President,  Finance, Chief Operating
Officer,  Chief  Financial  Officer and Treasurer,  since July 2001 after having
served as our Senior Vice President,  Finance and Chief Financial  Officer since
May 2000. Mr. Umana joined us in October 1999 as our Vice President, Finance and
Chief  Financial  Officer.  From 1997 to October 1999,  Mr. Umana served as Vice
President and Chief  Financial  Officer of the  Analytical  Instrument  Business
Unit, at PerkinElmer,  Inc., a high technology manufacturer.  Prior to 1997, Mr.
Umana held various  auditing  and  consulting  positions,  the most recent being
Senior  Manager,  Business  Consulting,  at Arthur  Andersen LLP, a professional
services company from 1985 to 1997. Mr. Umana is a Certified Public Accountant.

Wolfgang  Schweim became the President of Saucony  International in January 1998
after  serving as  President  of our  athletic  footwear  division  from 1994 to
January 1998.  From 1993 to 1994, Mr.  Schweim  served as Managing  Director for
Saucony Europe.  From 1989 to 1993, Mr. Schweim was the German Managing Director
and Marketing Sales Manager for Europe at Asics, an athletic shoe  manufacturer.
Prior to 1989, Mr. Schweim worked in sales and marketing  positions with various
shoe manufacturers, including Nike International and Adidas AG.

Michael Jeppesen joined us in May 2001, as Senior Vice President,  Manufacturing
and Design.  Mr.  Jeppesen was employed as Vice President of Operations of Coach
Leatherware Inc, a manufacturer of leather products, from 1999 to May 2001. From
1996 to 1999, Mr.  Jeppesen held various senior  management  positions at Adidas
AG, including Vice President of European  Operations and Vice President - Global
Materials, the most recent being Vice President of European Operations, which he
held from 1997.  Mr.  Jeppesen was employed as General  Manager of Prime Asia, a
footwear manufacturer, from 1994 to 1996.

Roger P.  Deschenes  has  served  as our Vice  President,  Controller  and Chief
Accounting  Officer since 1997,  after having served as our Controller and Chief
Accounting  Officer  from  1995 to  1997.  Mr.  Deschenes  joined  us in 1990 as
Corporate  Accounting  Manager.  He was  employed at  Allen-Bradley  Company,  a
subsidiary of Rockwell International,  Corp., from 1987 to 1990 as Financial and
Cost Reporting Supervisor. Mr. Deschenes is a Certified Management Accountant.

Officers are elected on an annual basis and serve at the discretion of the Board
of Directors.


<PAGE>



ITEM 2 - PROPERTIES

Our general and executive offices and our main distribution facility are located
in  Peabody,  Massachusetts  and are  owned by us.  This  facility  consists  of
approximately  145,000  square feet, of which  125,000  square feet is warehouse
space.

We also own a facility in Bangor,  Maine containing  approximately 73,000 square
feet of space,  which we  previously  had used for the  assembly of our domestic
Saucony  running  shoes.  We  commenced  seeking  a buyer for this  facility  in
February  2002. We also own a facility in Brookfield,  Massachusetts  containing
approximately   109,000  square  feet,   which  we  use  for   warehousing   and
distribution.

We lease approximately  4,000 square feet of office space in Boulder,  Colorado.
We lease factory outlet stores with an aggregate of approximately  24,000 square
feet of retail space at nine locations in Massachusetts,  Maine and Florida.  We
also own a factory outlet store  containing  approximately  3,000 square feet of
retail space in Bangor, Maine.


ITEM 3 - LEGAL PROCEEDINGS

We are  involved  in routine  litigation  incident  to our  business.  We do not
believe that any of these proceedings will have a material adverse effect on our
financial position, operations or cash flows.


ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

During the fiscal quarter ended January 4, 2002, there were no matters submitted
to a vote of security holders of Saucony, through the solicitation of proxies or
otherwise.




<PAGE>



PART II


ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Class A Common Stock and Class B Common Stock trade on the Nasdaq National
Market under the symbols "SCNYA" and "SCNYB," respectively. The following table
sets forth, for the periods indicated, the actual high and low sales prices per
share of the Class A Common Stock and the Class B Common Stock as reported by
the Nasdaq National Market.

<TABLE>
<CAPTION>
                                                                     Class A                        Class B
                                                                  Common Stock                Common Stock

                                                              High          Low             High             Low
                                                              ----          ---             ----             ---

     <S>                                                   <C>           <C>            <C>              <C>
     Fiscal Year ended January 4, 2002

     First quarter.........................................$ 10.500      $   6.313      $   10.125       $   5.969
     Second quarter........................................   8.570          5.570           8.590           5.800
     Third quarter.........................................   6.620          5.190           6.400           5.030
     Fourth quarter........................................   5.450          4.530           5.600           4.260


     Fiscal Year ended January 5, 2001

     First quarter.........................................$ 15.500      $   9.000      $   14.875       $   8.625
     Second quarter........................................  14.000          8.875          14.000           8.000
     Third quarter.........................................  11.500          9.250          11.500           8.625
     Fourth quarter........................................  11.250          8.000          11.125           7.359

</TABLE>


There were 248 and 254  stockholders  of record of the Class A Common  Stock and
Class B Common Stock,  respectively,  on March 14, 2002. Only the Class A Common
Stock has voting rights.

We have not paid any cash dividends  during the last two fiscal years and do not
anticipate paying any cash dividends in the foreseeable  future on the shares of
Class A Common  Stock or Class B Common  Stock.  We  currently  intend to retain
future earnings to fund the  development and growth of our business.  Our credit
facility agreement  restricts the payment or declaration of any dividend without
the consent of our lender.  Each share of Class B Common  Stock is entitled to a
regular  cash  dividend  equal to 110% of the  regular  cash  dividend,  if any,
payable on a share of Class A Common Stock.


<PAGE>


ITEM 6 - SELECTED FINANCIAL DATA

The  selected   consolidated   financial  data  should  be  read  together  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and our consolidated financial statements and related notes included
in this Annual Report on Form 10-K.

The selected  consolidated  financial data set forth below as of January 4, 2002
and January 5, 2001 and for the years ended January 4, 2002, January 5, 2001 and
December 31, 1999 are derived from the audited consolidated financial statements
of Saucony  included  in this  Annual  Report on Form 10-K.  All other  selected
consolidated  financial  data set forth below is derived from audited  financial
statements of Saucony not included in this Annual Report on Form 10-K. Saucony's
historical  results are not necessarily  indicative of its results of operations
to be expected in the future.
<TABLE>
<CAPTION>

Selected Income Statement Data
                                                                     (in thousands except per share amounts)

                                                           Year        Year         Year        Year        Year
                                                           Ended       Ended        Ended       Ended       Ended
                                                          Jan. 4,     Jan. 5,     Dec. 31,     Jan. 1,     Jan. 2,
                                                           2002      2001 (1)       1999        1999        1998
                                                           -----     --------       ----        ----        ----

<S>                                                    <C>           <C>         <C>         <C>         <C>
Revenues (2)...........................................$ 132,364     $167,920    $155,887    $105,810    $  93,962
Operating income (loss) (3), (4).......................     (269)      16,123      18,196       5,741       (1,935)
Income (loss) from continuing operations...............     (940)       8,963      10,319       3,579       (4,032)
Discontinued operations:
   Loss from discontinued operations...................       --           --          --          --         (394)
   Gain on disposal of Brookfield business.............       --           --          --          --           96

Net income (loss)......................................     (940)       8,963      10,319       3,579       (4,330)

Earnings per common share - basic
   Income (loss) from continuing operations............$   (0.15)    $    1.45   $   1.64    $   0.57    $  (0.65)
   Loss from discontinued operations...................       --            --         --          --       (0.05)
                                                       ---------     ---------   --------    ----------  ---------
Net income (loss) per common share - basic.............$   (0.15)    $    1.45   $   1.64    $   0.57    $  (0.70)
                                                       ==========    =========   ========    ========    =========

Earnings per common share - diluted
   Income (loss) from continuing operations............$   (0.15)    $    1.41   $   1.57    $   0.56    $  (0.65)
   Loss from discontinued operations...................       --            --         --          --       (0.05)
                                                       ---------     ---------   --------    --------    ---------
Net income (loss) per common share - diluted ..........$   (0.15)    $    1.41   $   1.57    $   0.56    $  (0.70)
                                                       ==========    =========   ========    ========    =========

Weighted average common shares and
   equivalents outstanding for diluted EPS ............    6,080         6,341      6,568       6,373       6,240

Cash dividends per share of common stock...............       --           --          --          --           --

Selected Balance Sheet Data
                                                          Jan. 4,      Jan. 5,    Dec. 31,     Jan. 1,     Jan. 2,
                                                           2002         2001        1999        1999        1998
                                                           ----         ----        ----        ----        ----

Current assets.........................................$  69,538     $ 73,531    $ 66,480    $ 58,963    $  50,091
Current liabilities....................................   12,325       15,919      15,403      18,840       13,315
Working capital........................................   57,213       57,612      51,077      40,123       36,776
Total assets...........................................   78,100       83,285      77,181      69,879       61,316
Long-term debt and capitalized lease
   obligations, net of current portion.................       --           34         292         559          771

Stockholders' equity...................................   63,162       64,620      58,962      48,250       45,072

---------------------------

(1)      See Note 1 to our Consolidated Financial Statements regarding reporting period.
(2)      See Note 1 to our Consolidated Financial Statements regarding the adoption of EITF 00-10 in fiscal 2001.
(3)      See Note 14 to our Consolidated Financial Statements regarding our Bangor, Maine plant closing and other non-recurring
          charges incurred in fiscal 2001.
(4)      See Note 13 to our Consolidated Financial Statements regarding the sale of our cycling division in fiscal 2000.

</TABLE>


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Dollar  amounts  throughout  this  Item 7 are in  thousands,  except  per  share
amounts.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated  financial statements,  which have been prepared
in  accordance  with  accounting  principles  generally  accepted  in the United
States.  The  preparation  of these  financial  statements  requires  us to make
estimates  and  judgments  that  affect  the  reported  amounts  of  assets  and
liabilities  at the date of the financial  statements  and revenues and expenses
during the reporting  period.  Actual results may differ  materially  from these
estimates.  Our significant  accounting  policies are described in Note 1 to the
consolidated  financial  statements  included in Item 8 of this Annual Report on
Form 10-K.  Critical  accounting policies are those policies that are reflective
of significant  judgments and uncertainties and potentially result in materially
different results under different assumptions and conditions.  Our most critical
accounting policies are as follows:

-    Revenue Recognition - Defective Products Returns and Other Allowances

     We  recognize  revenue  from  product  sales when title  passes and all the
     rewards and risk of loss have been  transferred  and all the  criteria  for
     revenue  recognition  described in SEC Staff  Accounting  Bulletin No. 101,
     Revenue  Recognition in Financial  Statements  (SAB 101), as amended by SAB
     101A and 101B are met. We must make estimates for defective product returns
     and other allowances related to current period product revenue. We record a
     provision for defective  product  returns and other  allowances  based upon
     past experience and the receipt of notification of pending  returns.  While
     the  returns  have  historically  been  within  our  expectations  and  the
     provisions  established,  we cannot  guarantee that the product return rate
     will remain constant.  Any significant  increase in the product return rate
     and  resulting  reduction  in our net sales  could have a material  adverse
     impact on our  results of  operations  for the period in which the  returns
     materialize.

-    Accounts Receivable - Allowances for Doubtful Accounts

     We maintain  allowances  for doubtful  accounts and therefore must estimate
     losses  resulting  from the  inability of our  customers  to make  required
     payments.  We analyze our accounts receivable,  historical bad debt trends,
     customer  credit  worthiness,  economic  trends and changes in our customer
     payment  terms when  evaluating  the adequacy of the allowance for doubtful
     accounts. As noted in Note 17 of the consolidated financial statements,  we
     have a credit risk concentration,  due to the concentration of our domestic
     Saucony  footwear  sales amongst a relatively  small  customer base. If the
     liquidity or financial  condition  of any of our larger  customers  were to
     deteriorate,  resulting in an  impairment of their ability to make payments
     due us or if payment  schedules of our customers are otherwise delayed from
     historical  trends,  additional  allowances might be required,  which could
     materially increase our allowance for doubtful accounts.

-    Inventories

     We value our  inventory  at the lower of the actual cost to purchase or the
     current   estimated  market  value.   Provision  for  excess  and  obsolete
     inventory,  equal to the  difference  between the cost of the inventory and
     the estimated market value, must be estimated by us. Our provision is based
     upon  estimated  product  demand and market  conditions.  If actual  future
     demand or market  conditions are less favorable than those projected by us,
     additional provisions to write-down inventory may be required,  which could
     materially reduce our amount of current assets.

-    Income Taxes

     We estimate our income taxes in each of the jurisdictions  that we operate.
     This  process  requires us to estimate our current tax  exposure,  together
     with assessing temporary  differences,  which result in deferred tax assets
     and liabilities.  We recognize deferred tax assets and liabilities based on
     the difference between the financial statement carrying amounts and the tax
     bases of assets and  liabilities.  We  regularly  review our  deferred  tax
     assets  for  recoverability  and  establish  valuation  allowances  when we
     determine  that it is more  likely  than not that the  deferred  tax assets
     resulting from operating  losses will not be realized.  During fiscal 2001,
     we recorded deferred tax valuation allowances of $387.

     United States federal tax laws allow  companies to defer the recognition of
     tax liability on undistributed  earnings of foreign  subsidiaries  that are
     indefinitely  reinvested in the foreign  operation.  At January 4, 2002, we
     had approximately $3,076 of undistributed  earnings of foreign subsidiaries
     that are  indefinitely  reinvested in foreign  operations for which we have
     not recorded deferred income taxes.

<TABLE>
<CAPTION>

Highlights
                                                                           Increase (Decrease)
                                                                           -------------------
                                                                    2001 vs. 2000            2000 vs. 1999
                                                                    -------------            -------------

         <S>                                                   <C>            <C>       <C>           <C>
         Net sales.............................................$   (35,536)   (21.2)%   $    12,339   7.9%
         Gross profit..........................................    (20,059)   (32.3)          3,360   5.7
         Selling, general and administrative expenses..........     (3,134)    (7.2)          2,466   6.0

</TABLE>
<TABLE>
<CAPTION>

                                                                                $ Change
                                                                                --------
                                                                    2001 vs. 2000            2000 vs. 1999
                                                                    -------------            -------------

         <S>                                                       <C>                       <C>
         Operating income.........................................$  (16,392)               $  (2,073)
         Income before income taxes...............................   (15,877)                  (2,076)
         Net income...............................................    (9,903)                  (1,356)

</TABLE>
<TABLE>
<CAPTION>

                                                                           Percent of Net Sales
                                                                           --------------------
                                                                     2001          2000         1999
                                                                     ----          ----         ----

         <S>                                                         <C>           <C>          <C>
         Gross profit.............................................   31.9%         37.1%        37.9%
         Selling, general and administrative expenses.............   30.6          25.9         26.4
         Operating income (loss) .................................   (0.2)          9.6         11.7
         Income (loss) before income taxes........................   (0.3)          9.2         11.3
         Net income (loss)........................................   (0.7)          5.3          6.6

</TABLE>

Consolidated Net Sales

Fiscal  2001,  fiscal  2000 and fiscal  1999  consisted  of 52, 53 and 52 weeks,
respectively.  Our net sales and results of operations  for each of fiscal 2001,
fiscal 2000 and fiscal 1999 are comparable. Net sales decreased $35,536, or 21%,
to $132,261 in fiscal 2001 from  $167,797 in fiscal 2000.  Excluding  sales from
our former  cycling  division,  the net sales decrease in fiscal 2001 would have
been 20% lower than fiscal 2000. Net sales increased $12,339, or 8%, to $167,797
in fiscal 2000 from  $155,458 in fiscal  1999.  Excluding  sales from our former
cycling  division,  the net sales  increase  in fiscal  2000 would have been 11%
higher than fiscal 1999.

On a geographic basis,  domestic sales decreased $39,309, or 27%, to $106,484 in
fiscal 2001 from $145,793 in fiscal 2000.  International sales increased $3,773,
or 17%,  to $25,777 in fiscal  2001 from  $22,004 in fiscal  2000.  At  constant
exchange rates, the international  sales increase in fiscal 2001 would have been
21%.  Domestic sales  increased  $9,399,  or 7%, to $145,793 in fiscal 2000 from
$136,394  in fiscal  1999.  International  sales  increased  $2,940,  or 15%, to
$22,004 in fiscal 2000 from $19,064 in fiscal 1999. At constant  exchange rates,
the international sales increase in fiscal 2000 would have been 23%.



Saucony Segment

                           2001                     2000                 1999
                           ----                     ----                 ----

  Net Sales            $110,292 (-25%)        $146,468 (+10%)          $133,060


2001 Compared to 2000

Worldwide  net sales of Saucony  branded  footwear and Saucony  branded  apparel
decreased  $36,176,  or 25%, to $110,292 in fiscal 2001 from  $146,468 in fiscal
2000,  due  primarily  to a 22%  decrease  in  footwear  unit  volumes and lower
domestic and international  wholesale per pair average sell prices.  The overall
average  domestic  wholesale  selling  prices  per  pair  of  domestic  footwear
decreased 2% in fiscal 2001 versus fiscal 2000, due to a 33% increase in special
make-up  footwear  unit  volumes and a 34%  increase in closeout  footwear  unit
volumes, both of which sell at prices below our first quality technical footwear
and,  a change  in the  product  mix for  technical  footwear  to  lower  priced
products.

Domestic  net sales  decreased  $40,344,  or 32%, to $86,414 in fiscal 2001 from
$126,758 in fiscal 2000,  due primarily to a 62% decrease in Originals  footwear
unit volumes, a 13% decrease in technical  footwear unit volumes,  lower average
wholesale  per pair  selling  prices,  partially  offset  by a 34%  increase  in
closeout  footwear unit volumes and a 33% increase in special  make-up  footwear
unit volumes.  The lower  average  wholesale  selling  prices per pair is due to
higher unit volumes of closeout footwear and special make-up  footwear,  both of
which  sell at prices  below  our first  quality  technical  footwear.  Sales of
closeout footwear  accounted for approximately 12% of domestic Saucony net sales
in fiscal 2001 compared to 5% in fiscal 2000. The Originals  footwear  accounted
for 29% of fiscal 2001 domestic  footwear unit volume versus 53% in fiscal 2000.
The unit volume  decrease in Originals  footwear is primarily  due to a shift in
consumer preference to other product categories,  primarily basketball footwear,
which  we do not  sell.  During  the  second  half of  fiscal  2001,  the  order
cancellation rate for our Saucony footwear decreased from the order cancellation
rate in the first half of fiscal  2001 and was  comparable  with our  historical
average.

International net sales increased $4,168, or 21%, to $23,878 in fiscal 2001 from
$19,710 in fiscal  2000,  due  primarily  to a 40%  increase  in  footwear  unit
volumes, partially offset by lower average per pair wholesale selling prices and
the negative  impact of the stronger U.S.  dollar against  European  currencies.
Footwear unit volumes  increased 73% at our international  distributor  business
and 17% at our European and Canadian subsidiaries,  respectively, in fiscal 2001
versus  fiscal 2000.  The  footwear  unit volume  increase in our  international
distributor  business is due primarily to the success of our Originals  footwear
product  in  the  Japanese   footwear  market  in  2001,   which  accounted  for
approximately  91% of the  international  distributor unit volume increase,  and
increased market penetration in the Pacific Rim.

2000 Compared to 1999

Worldwide net sales of Saucony branded footwear and apparel  increased  $13,408,
or 10%, to $146,468 in fiscal 2000 from  $133,060 in fiscal 1999,  due primarily
to a 6% increase in footwear unit volumes and higher domestic and  international
wholesale per pair average sell prices.  The overall average domestic  wholesale
selling prices per pair of domestic footwear  increased 5% in fiscal 2000 versus
fiscal 1999,  due to an 11% increase in  technical  footwear  unit volumes and a
change in the product mix for technical and Originals  footwear to higher priced
products that resulted in higher average sell prices for both categories.

Domestic  net sales  increased  $10,512,  or 9%, to $126,758 in fiscal 2000 from
$116,246 in fiscal 1999, due primarily to the 11% increase in technical footwear
unit volumes,  a 103% increase in closeout  footwear unit volumes and the higher
average  wholesale  selling  prices per pair for both  technical  and  Originals
footwear,  partially offset by a 4% decrease in Originals  footwear unit volumes
and lower special make-up footwear volume.  Sales of closeout footwear accounted
for approximately 5% of domestic Saucony net sales in fiscal 2000 compared to 3%
in fiscal 1999. The Originals footwear accounted for 53% of fiscal 2000 domestic
footwear  unit volume  versus 58% in fiscal  1999.  The unit volume  decrease in
Originals  footwear  was  primarily  due  to  a  lack  of  sell-through  on  the
"new-school" products, which resulted in order cancellations.  During the fourth
quarter of fiscal 2000, the order cancellation rate for our Saucony footwear was
higher than our historical average.

International net sales increased $2,896, or 17%, to $19,710 in fiscal 2000 from
$16,814 in fiscal 1999,  due  primarily to a 23% increase in technical  footwear
unit volumes and higher average wholesale per pair sell prices, partially offset
by the negative impact of the stronger U.S. dollar against European  currencies.
Footwear  unit  volumes  at our  international  distributor  business,  and  our
European and Canadian  subsidiaries,  increased  45% and 11%,  respectively,  in
fiscal  2000 versus  fiscal  1999.  The  footwear  unit  volume  increase in our
international  distributor  business  was due  primarily  to our entry  into the
Japanese  footwear market in 2000, which accounted for  approximately 64% of the
international distributor unit volume increase.

Other Products Segment

                            2001                    2000                  1999
                            ----                    ----                  ----

   Net Sales            $21,969 (+3%)           $21,329 (-5%)           $22,398

The Other Products segment consists of our Hind athletic apparel, eleven factory
outlet  stores,  Spot-bilt  coaches' and official  shoes and casual  walking and
workplace footwear,  sales of our Hyde Authentics casual footwear, which will be
discontinued in fiscal 2002, and sales from our former cycling division. Each of
these  businesses  represented  less  than 10% of  total  revenues  and,  in the
aggregate, represented 17% of total net sales in fiscal 2001.

2001 Compared to 2000

Worldwide  sales of Other Products  increased  $640, or 3%, to $21,969 in fiscal
2001 from $21,329 in fiscal 2000 due primarily to increased sales at our factory
outlet stores,  increased Hyde Authentic unit volume and increased  sales of our
Hind brand apparel,  partially offset by the elimination of sales resulting from
the cycling division divestiture in fiscal 2000.

Domestic  net sales of Other  Products  increased  $1,035,  or 5%, to $20,070 in
fiscal 2001 from $19,035 in fiscal 2000 due primarily to increased  sales at our
factory outlet division, reflecting the net addition of one factory outlet store
and  increased  sales at  stores  open for more than one  year,  increased  Hyde
Authentics  footwear  unit  volume,  increased  unit volume of our Hind  apparel
brand,  partially  offset by the  elimination  of sales from our former  cycling
division,  which was divested in fiscal 2000.  International  net sales of Other
Products  decreased $395, or 17%, to $1,899 in fiscal 2000 from $2,294 in fiscal
2000, primarily due to decreased Hind apparel sales in Europe.

2000 Compared to 1999

Worldwide sales of Other Products  decreased $1,069, or 5%, to $21,329 in fiscal
2000 from  $22,398 in fiscal  1999 due  primarily  to the  elimination  of sales
resulting from the cycling division  divestiture,  partially offset by increased
sales of our Hind  brand  apparel  and  increased  sales at our  factory  outlet
stores.

Domestic  net sales of Other  Products  decreased  $1,113,  or 6%, to $19,035 in
fiscal 2000 from  $20,148 in fiscal 1999 due  primarily  to the  elimination  of
sales from our former  cycling  division,  which was  divested  in fiscal  2000,
partially  offset  by  increased  unit  volume  of our Hind  apparel  brand  and
increased sales at our factory outlet division stores due to the net addition of
two factory outlet stores.  International net sales of Other Products  increased
$44,  or 2%,  to  $2,294 in fiscal  2000  from  $2,250  in fiscal  1999,  due to
increased Hind apparel sales in Europe.

Costs and Expenses

Our gross  margin in fiscal  2001  decreased  5.2% to 31.9% from 37.1% in fiscal
2000 due primarily to the significant decline in Saucony domestic sales of first
quality  footwear  products at full margin.  Other factors  contributing  to the
fiscal  2001  margin  decrease  were  proportionately  higher  sales of closeout
products,  due to our decision to reduce inventory levels and of special make-up
footwear,   both  of  which  carry  lower  margins  and,  to  a  lesser  extent,
manufacturing  inefficiencies,   domestic  pricing  pressures,  changes  in  the
geographic  mix of sales  and the  negative  impact  of the U.S.  dollar  on our
European margins.

For the 2000 fiscal year, the gross margin  decreased 0.8% to 37.1%,  from 37.9%
in fiscal 1999,  due  primarily to a change in domestic  Saucony  product mix to
higher levels of closeout sales at comparatively lower margins, domestic pricing
pressures,  increased  inventory  reserves and, to a lesser extent, the negative
impact of the stronger U.S.  dollar on our European  margins and a change in the
Saucony international sales mix to increased distributor sales.

The SG&A ratio increased 4.7% to 30.6% of net sales in fiscal 2001 from 25.9% in
1999.  The  increase  in  the  ratio  resulted  from  advertising,  selling  and
administrative  expenses  decreasing  at a lower rate than the rate of the sales
decrease.  In absolute dollars,  selling,  general and  administrative  expenses
decreased  to $40,407 in 2001,  or 7%, from  $43,541 in fiscal  2000.  Decreased
spending  in  fiscal  2001  was due  primarily  to  reduced  operating  expenses
resulting from the cycling division divestiture,  decreased television and print
media advertising,  decreased account-specific advertising,  promotion and event
sponsorship and decreased variable selling expenses and incentive  compensation,
offset  partially by increased  operating  expenses  associated with the factory
outlet division expansion and higher provisions for doubtful accounts.

The SG&A ratio  improved 0.5% to 25.9% of net sales in fiscal 2000 from 26.4% in
1999. The  improvement  in the ratio  resulted from the continued  management of
advertising, selling and administrative expenses below the rate of sales growth.
In absolute dollars,  selling,  general and administrative expenses increased to
$43,541 in 2000,  or 6%,  from  $41,075 in fiscal  1999.  Increased  spending in
fiscal  2000  was   attributable   to  increased   television  and  print  media
advertising,  increased  account-specific  advertising and promotion,  increased
event sponsorship,  increased variable selling expenses, administrative staffing
increases,  increased  operating  expenses  associated  with the factory  outlet
division expansion and increased  professional fees, partially offset by reduced
operating  expenses  resulting from the cycling  division  divestiture and lower
provisions for doubtful accounts.  The higher provision for doubtful accounts in
fiscal 1999 in comparison  with fiscal 2000 was due primarily to the  bankruptcy
filing by Just for Feet, Inc.

Plant Closing and Other Non-Recurring Charges

On November 9, 2001 we announced the cessation of  manufacturing  and closing of
our  Bangor,  Maine  facility.  During the fourth  quarter  of fiscal  2001,  we
relocated our Asian sourcing and quality  control office to China,  resulting in
the closure of our Taiwan office and negotiated an early termination and exit of
a  retail  store  lease.  As a result  of these  actions,  we  recorded  pre-tax
non-recurring  charges of $2,108, or $1,277 after-tax or $0.21 per diluted share
after-tax. The closing of our Bangor, Maine facility in January 2002 resulted in
the  termination of 104  employees,  of which 61 were  terminated  subsequent to
January 4, 2002. Assets used by our Bangor,  Maine manufacturing  facility,  the
Taiwan  office and our retail store have been written down to fair market value.
Expenses associated with the plant closing and other  non-recurring  charges are
as follows: Bangor Taiwan Retail Plant Office Store Total
<TABLE>

     <S>                                                               <C>          <C>         <C>        <C>
     Employee severance and termination benefits.......................$ 1,121      $  150      $     4    $  1,275
     Facility and equipment lease exit costs and
      other non-cancelable contractual commitments.....................    228          --          200         428
     Writedown of machinery and equipment
      to fair market value.............................................    248          25           77         350
     Professional fees and other transaction costs.....................     47          --            8          55
                                                                       -------      ------      -------    --------

      Total............................................................$ 1,644      $  175      $   289    $  2,108
                                                                       =======      ======      =======    ========
</TABLE>


Included in accrued  expenses at January 4, 2002 are $1,461 of costs  associated
with the plant closing and other non-recurring charges, the majority of which we
expect will be paid by the end of the first  quarter of fiscal 2002.  The charge
recorded for the Bangor,  Maine plant closing and the Taiwan office  closing are
included in income  before tax for the Saucony  segment,  while the retail store
closing is included in income before tax for the Other Products segment.

As of January 4, 2002,  our Bangor,  Maine real property had a net book value of
$357 and is included on the balance sheet under the caption "Property, plant and
equipment".  We commenced  marketing  the property for sale in February 2002 and
have received market valuations for the property in the range of $875 to $1,250.
Beginning  in the first  quarter of fiscal  2002,  we will  reclassify  the real
property  to  current  assets  as "Held For  Sale."

Sale of  Cycling Division

On June 29, 2000,  we sold  substantially  all of the assets and business of our
cycling  division,  consisting of  inventory,  prepaid  expenses,  equipment and
tradenames,  to QR Merlin  Acquisition LLC for $1,350 in cash and the assumption
of $39 in  liabilities.  In connection with the sale, we recorded a pre-tax loss
of $2,661,  inclusive of $1,012 of expenses  associated with the transaction and
expenses resulting from our exit of the cycling business, or $1,553 after-tax or
$0.24 per diluted share after-tax. As a result of the transaction, a majority of
the cycling  division  employees were severed and assets used exclusively in the
cycling  business  were deemed  impaired  and have been  written  off.  Expenses
associated with the sale and exit of the cycling division are as follows:

         Transaction costs............................................$    358
         Costs to exit facility and equipment leases and
           other non-cancelable contractual commitments...............     142
         Employee severance and termination benefits..................     210
         Writeoff leasehold improvements..............................      84
         Writeoff goodwill and other deferred charges.................     218
                                                                      --------

         Total........................................................$  1,012
                                                                      ========

Included  in accrued  expenses  at January 5, 2001 are $144 of costs  associated
with the sale and the exit of the  cycling  business,  which were paid in fiscal
2001.

Net sales from the cycling  division,  which are included in our Other  Products
segment,  represented  approximately 1.9% and 4.7% of consolidated net sales for
fiscal  years 2000 and 1999,  respectively.  The loss on the sale of the cycling
division is included in the income before tax for the Other Products segment.

Interest Expense

Net interest  expense totaled $153, $626 and $683 in fiscal years 2001, 2000 and
1999,  respectively.  Interest expense decreased 76% in fiscal 2001 due to lower
average debt levels and  increased  interest  income.  In fiscal 2000,  interest
expense  decreased 8% due to lower  average debt levels and  increased  interest
income, partially offset by higher interest rates on our domestic borrowings.

Income (Loss) Before Taxes

       Segment                    2001                2000              1999
       -------                    ----                ----              ----

   Saucony....................$     (296)         $   18,507         $   18,965
   Other Products.............       (68)             (2,994)            (1,376)
                              -----------         -----------        -----------
   Consolidated...............$     (364)         $   15,513         $   17,589
                              ===========         ==========         ==========

We evaluate  business  performance  and the performance of key managers based on
profit or loss before  income  taxes.  Income before tax decreased by $15,877 in
fiscal 2001 to a loss of $364  compared  to a profit of $15,513 in fiscal  2000,
due primarily to the significant  reduction in the domestic  Saucony segment due
to lower sales and lower gross  margins and, to a lesser  extent,  non-recurring
charges of $2,108 incurred in connection  with the closure of our Bangor,  Maine
manufacturing facility,  early termination and exit of a retail store outlet and
the closure of our Taiwan office.

Income  before tax  decreased  by $2,076 in fiscal  2000 to $15,513  compared to
$17,859 in fiscal  1999,  due  primarily  to the loss on the sale of the cycling
division,  which impacted the Other Products segment, and lower domestic pre-tax
income  realized by the domestic  Saucony segment due to lower gross margins and
higher  selling  expenses,  partially  offset by improved  profitability  in our
Saucony international and Hind apparel business.

Income Taxes

The provision  for income taxes  decreased to $475 in fiscal 2001 from $6,461 in
fiscal  2000 due  primarily  to a decrease in domestic  pre-tax  income,  offset
partially  by an increase  in  deferred  valuation  allowances  on foreign  loss
carryforwards  that  are  not  expected  to be  realized  and  a  shift  in  the
composition of domestic and foreign pre-tax earnings.

The provision for income taxes decreased to $6,461 in fiscal 2000 from $7,194 in
fiscal 1999, due primarily to the loss on the sale of the cycling division which
reduced domestic pre-tax income.  The effective tax rate increased 0.7% to 41.6%
in fiscal  2000 from 40.9% in fiscal 1999 due to a shift in the  composition  of
domestic  and foreign  pre-tax  earnings  and an increase in deferred  valuation
allowances on foreign loss carryforwards that are not expected to be realized.

Net Income (Loss)

The net loss for fiscal 2001 was $940, or $0.15 per diluted  share,  compared to
net income of $8,963,  or $1.41 per diluted  share,  in fiscal  2000.  The plant
closing and other non-recurring  charges reduced net income and diluted earnings
per share by $1,277 and $0.21, respectively in fiscal 2001. Excluding the effect
of the non-recurring  charges, our net income would have been $337, or $0.05 per
diluted  share.  Weighted  average common shares of 6,080 were used to calculate
diluted  earnings per in fiscal 2001,  while weighted  average common shares and
equivalent shares of 6,341 were used to calculate diluted earnings per share for
fiscal 2000. Equivalent shares were not used in fiscal 2001 to calculate diluted
earnings per share because they were anti-dilutive.

Net income for fiscal 2000  decreased  to $8,963,  or $1.41 per  diluted  share,
compared to $10,319, or $1.57 per diluted share, in fiscal 1999. The loss on the
sale of our cycling  division  reduced net income and diluted earnings per share
by $1,553 and $0.24,  respectively,  in fiscal 2000. Excluding the effect of the
loss on the sale of our  cycling  division,  our net income in fiscal 2000 would
have been $10,516,  or $1.66 per diluted share.  Weighted  average common shares
and equivalent  shares used to calculate  diluted  earnings per share were 6,341
and 6,568, respectively, in fiscal 2000 and 1999.

Liquidity and Capital Resources

Fiscal 2001

As of  January  4,  2002,  our cash and cash  equivalents  totaled  $22,227,  an
increase of $17,489 from January 5, 2001.  The increase is due  primarily to the
generation of $21,556 of cash from operations,  partially offset by cash outlays
for capital  assets of $1,326 and the repayment of short-term  borrowings  under
our credit facilities of $2,474 and the repayment of long-term debt of $226.

The decrease in accounts  receivable  of $11,827,  net of the  provision for bad
debt and discounts,  was due primarily to decreased net sales of our Saucony and
other  products in the fourth  quarter of fiscal 2001 and a decrease in our days
sales  outstanding for our accounts  receivable.  Our days sales outstanding for
our  accounts  receivable  decreased  to 41 days in fiscal  2001 from 58 days in
fiscal  2000,  due  primarily  to a reduction in payment date sales terms due to
increased sales of special make-up and closeout  footwear and increased  foreign
distributor  volume,  of which dating  programs are  shorter.  In addition,  the
increased  provisions for doubtful  accounts  reduced days sales  outstanding by
approximately two days in fiscal 2001. The provision for bad debts and discounts
increased to $5,767 in fiscal 2001 from $5,525 in fiscal 2000 due to an increase
in the provision for doubtful accounts.  Inventories  decreased $9,418 in fiscal
2001  due  primarily  to  our  decision  to  reduce  domestic  Saucony  footwear
inventories,  which had  increased  in the fourth  quarter of fiscal 2000 due to
increased order cancellations,  and lower factory outlet inventories,  which had
increased due to the expansion of the factory outlet  division.  The increase in
domestic Saucony footwear inventory in fiscal 2000 resulted from increased order
cancellations  in the fourth  quarter of 2000 for both  technical  and Originals
footwear.   The  decision  to  reduce  domestic  Saucony  footwear   inventories
negatively  impacted  fiscal  2001 gross  margins.  Our  inventory  turns  ratio
decreased to 2.7 turns in fiscal 2001 from 2.9 turns in fiscal 2000.  The number
of days sales in inventory decreased to 115 days in fiscal 2001 from 132 days in
fiscal 2000.

Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory)  affecting our operating cash flows in fiscal
2001  included a decrease  of $3,472 in  accrued  letters of credit  (due to new
inventory  supplier  payment terms),  an increase of $3,484 in accounts  payable
(due to a change in inventory  purchase  terms), a decrease of $2,286 in accrued
expenses  (due to decreased  performance-based  compensation  accruals and lower
operating  spending levels),  and an increase of $344 in income tax payable (due
to the timing of income tax payments).

During fiscal 2001,  we  repurchased  approximately  19,000 shares of our common
stock for a total  expenditure of $132.  Since the approval of the stock buyback
program by the Board of Directors in May 1998,  we have  repurchased  a total of
467,000  shares of our common  stock for a total of  expenditure  of $4,364.  We
cannot  repurchase  additional shares of our common stock without the consent of
the primary lender under our credit facility.

Fiscal 2000

As of January 5, 2001, our cash and cash equivalents totaled $4,738, an increase
of $1,223  from  December  31,  1999.  The  increase  was due  primarily  to the
generation  of $4,100 of cash from  operations,  the  receipt of $1,350 from the
sale of our  former  cycling  division  and an  increase  of $335 in  short-term
borrowings, principally under our credit facilities. This increase was partially
offset by cash outlays for capital assets of $1,669, the repurchase of shares of
our common stock of $2,688 and the repayment of long-term debt of $360.

The increase in accounts receivable of $3,074, net of the provision for bad debt
and discounts, was due primarily to increased net sales of our Saucony and other
products in the fourth  quarter of fiscal 2000 and an increase in our days sales
outstanding  for our accounts  receivable.  Our days sales  outstanding  for our
accounts  receivable  increased to 58 days in fiscal 2000 from 56 days in fiscal
1999, due primarily to the reserve of $1,525  provided for on the receivable due
from Just for Feet,  Inc.  in fiscal  1999,  which  reduced the fiscal 1999 days
sales outstanding by 3 days, and, to a lesser extent, the timing of shipments in
the fourth quarter of fiscal 2000.  Inventories  increased $6,018 in fiscal 2000
due to increased  domestic  Saucony footwear  inventory,  increased Hind apparel
inventory and increased  inventory at the our factory outlet stores,  due to the
net addition of two stores in 2000.  The increase in domestic  Saucony  footwear
inventory  resulted from increased order  cancellations in the fourth quarter of
2000 for both  technical  and  Originals  footwear.  Our  inventory  turns ratio
remained  constant at 2.9 turns for both fiscal 2000 and fiscal 1999. The number
of days sales in inventory decreased to 132 days in fiscal 2000 from 133 days in
fiscal 1999.

Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory)  affecting our operating cash flows in fiscal
2000  included  an  increase  of $1,210 in  accrued  letters  of credit  (due to
increased  direct-ship  inventory  purchases),  a decrease  of $1,185 in accrued
expenses  (due to  decreased  performance-based  compensation  accruals  and the
payment of expenses resulting from the cycling division divestiture), a decrease
of $412 in accounts  payables (due to the timing of inventory  purchases)  and a
decrease of $889 in income taxes  payable (due to domestic tax payments  made in
the fourth quarter of 2000).

During fiscal 2000, we  repurchased  approximately  300,000 shares of our common
stock  for a total  expenditure  of  $3,106,  $418 of which  was  financed  with
borrowed funds. At January 5, 2001, this borrowing and accrued  interest thereon
of $15 are included in notes payable.

Credit Facility

We maintain a revolving  credit line of $15,000 for cash  borrowings and letters
of credit.  We reduced the amount  available for cash  borrowings and letters of
credit under the credit  facility  from $20,000 to $15,000 in February  2002. We
and certain of our subsidiaries have guaranteed our obligations under the credit
facility. The credit facility is unsecured. The credit facility contains certain
restrictions  and  financial  covenants  with which we are  required  to comply,
whether or not there are any  borrowings  outstanding.  The credit  facility has
been extended  through June 30, 2002. Under the most  restrictive  covenant,  we
were required to maintain a minimum  tangible net worth of $50,961 as of January
4, 2002. The credit  facility is also subject to the bank's  periodic  review of
our  operations.  We may not pay cash dividends and repurchase  shares of common
stock without the consent of our primary lender under the credit facility. As of
January 4, 2002 and March 14,  2002,  $19,640 and  $15,000,  respectively,  were
available for borrowing under the credit facility.

In February 2002,  our primary  lender amended the definition of EBIT,  earnings
before interest and taxes under the credit facility.  The amendment modified the
calculation of minimum  interest expense coverage in relation to EBIT to exclude
the  non-recurring  charges of $2,108  incurred  by us in the fourth  quarter of
fiscal 2001. The amendment  applied with the minimum  interest  expense coverage
covenant  under the credit  facility with respect to the fiscal  quarters  ended
January  4,  2002 and  April  5,  2002.  We were in  compliance  with all  other
covenants of the credit facility at January 4, 2002.

Several of our foreign subsidiaries maintain credit facilities in the aggregate
principal amount of approximately $3,450. At March 1, 2002 an aggregate of
approximately $3,391 was available for borrowing under the facilities of our
foreign subsidiaries. See Note 8 to the Consolidated Financial Statements.

Capital Expenditures Commitments

At January 4, 2002, our commitments for capital expenditures were not material.

Contractual Obligations

Below is a table which presents our  contractual  obligations and commitments at
January 4, 2002.
<TABLE>
<CAPTION>


                                                                        Payments due by year
                                                -------------------------------------------------------------------
                                                                                                            2006
        Contractual                                                                                          and
        Obligations                               Total       2002        2003        2004       2005    thereafter
        -----------                               -----       ----        ----        ----       ----    ----------

<S>                                             <C>         <C>         <C>         <C>         <C>        <C>
Long-term debt..................................$    --     $    --     $     --    $     --    $    --    $     --
Capital lease obligations.......................     92          92           --          --         --          --
Operating leases................................  4,949       1,480        1,244       1,071        628         526
Other long-term obligations (1).................  2,903       1,307          913         183         --         500
                                                -------     -------     --------    --------    -------    --------
Total contractual cash obligations..............$ 7,944     $ 2,879     $  2,157    $  1,254    $   628    $  1,026
                                                =======     =======     ========    ========    =======    ========
---------------
(1) Other long-term obligations include athlete and event sponsorship and
employment contracts with two key executives.
</TABLE>

Overall Liquidity

Our liquidity is  contingent  upon a number of factors,  principally  our future
operating  results.   Management   believes  that  our  current  cash  and  cash
equivalents,  credit  facilities and internally  generated funds are adequate to
meet our working capital  requirements and to fund our capital  investment needs
and debt  service  payments in the near term.  During  fiscal 2001 we  generated
$21,556 in cash from  operating  cash flows,  due primarily to a decrease in our
accounts  receivable and inventories.  In 2000, we generated $4,100 in cash from
operating  cash  flows.  As of  January  4, 2002,  we had  $14,742  in  accounts
receivable and $28,404 in inventories.

At January 4, 2002, we had no borrowings outstanding under our credit facilities
and had $88 due under capital leases. Our short-term liquidity could potentially
be adversely  impacted  should  demand for our products  decline  significantly,
which could result in extended payment terms for our customers and the increased
use of price  concessions  to induce  customers to purchase our products.  Since
July 31, 2001, the original expiration date of our primary credit facility,  our
lender has extended the facility on several  occasions.  The credit  facility is
scheduled to terminate on June 30, 2002.  Our ability to fund future  operations
could be  adversely  impacted if we are not able to renew this  credit  facility
under the current terms and conditions.  In addition,  although we are currently
in compliance with the effective covenants under the credit facility, if we were
to fall out of compliance  with those covenants or the covenants under a renewal
of the facility, the credit facility would not be available to us and our lender
may declare a default under the credit facility.

INFLATION AND CURRENCY RISK

The effect of inflation on our results of  operations  over the past three years
has been  minimal.  The  impact  of  currency  fluctuation  on our  purchase  of
inventory  from  foreign  suppliers  has been minimal as the  transactions  were
denominated in U.S. dollars.  We are, however,  subject to currency  fluctuation
risk with  respect to the  operating  results of our  foreign  subsidiaries  and
certain  foreign  currency  denominated  payables.  During fiscal 2001 the gross
margins of our European  subsidiaries  were negatively  impacted due to currency
fluctuation. We have entered into forward foreign exchange contracts to minimize
certain transaction currency risks. We believe that our forward foreign currency
contracts  function  as  economic  hedges of our cash flows and that our foreign
exchange management program effectively  minimizes certain transaction  currency
risks.

ACCOUNTING PRONOUNCEMENTS

SFAS 141

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141). SFAS
141 addresses financial  reporting and accounting for business  combinations and
supersedes  Accounting  Principles  Board  Opinion  No. 16,  (APB 16)  "Business
Combinations",   and  Statement  of  Financial   Accounting  Standards  No.  38,
"Accounting for  Preacquisition  Contingencies of Purchased  Enterprises"  (SFAS
38). SFAS 141 requires that business combinations in the scope of this Statement
are to be accounted for using one method, the purchase method. The provisions of
SFAS 141 apply to all business combinations initiated after June 30, 2001 and is
also  applicable  to all  business  combinations  accounted  for by the purchase
method for which the date of acquisition is July 1, 2001, or later. The adoption
of SFAS 141 did not have a  material  effect  on  earnings  or on our  financial
position.

SFAS 142

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting Standards No. 142, "Goodwill and Other Intangible Assets",
(SFAS 142). SFAS 142 addresses  financial  accounting and reporting for acquired
goodwill and other  intangible  assets acquired  individually or with a group of
other  assets   (excluding   those  acquired  in  a  business   combination)  at
acquisition. The statement also addresses financial accounting and reporting for
goodwill  and  other  intangibles  subsequent  to  their  acquisition.  SFAS 142
supersedes  Accounting Principles Board Opinion No. 17, "Intangible Assets" (APB
17).  All of the  provisions  of SFAS 142 will be applied to goodwill  and other
intangible  assets  effective in the fiscal years  beginning  after December 15,
2001.  Under SFAS 142 goodwill and other  indefinite-lived  intangibles  will no
longer be amortized,  but rather will be reviewed for impairment.  An impairment
loss will be  recognized  if the carrying  value of an  intangible  asset is not
recoverable and its carrying value exceeds its fair value. Impairment losses for
goodwill and  indefinite-lived  intangible  assets that arise due to the initial
application  of this  Statement are to be reported as resulting from a change in
accounting  principle.  At January 4, 2002,  the net book value of goodwill  was
$912.  Amortization  expense  amounted  to $131 in fiscal 2001 and we would have
been reported amortization expense of $113 in fiscal 2002. We will adopt SFAS in
the first quarter of fiscal 2002 and are assessing the impact of the  provisions
of SFAS 142.  We do not  anticipate  that the  adoption  of SFAS 142 will have a
material impact on earnings or on our financial position.

SFAS 143

In August 2001, the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  143,  "Accounting  for  Asset  Retirement
Obligations",  (SFAS 143). SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated  asset  retirement  cost.  SFAS 143 applies to all companies that
incur legal  obligations to retire tangible  long-lived  assets that result from
the acquisition,  construction,  development or normal operation of a long-lived
asset.  SFAS 143 is effective for fiscal years beginning after June 15, 2002. We
have not  determined  the  impact on our  results  of  operations  or  financial
position on the initial adoption of SFAS 143.

SFAS 144

In August 2001, the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 144, "Accounting for Impairment or Disposal
of Long-Lived Assets",  (SFAS 144). SFAS 144 addresses financial  accounting and
reporting for the  impairment or disposal of long-lived  assets,  and supercedes
Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of",
(SFAS 121), and the accounting and reporting provisions of Accounting Principles
Board  Opinion No. 30,  "Reporting  the Results of  Operations  - Reporting  the
Effects of Disposal of a Segment of a Business,  and Extraordinary,  Unusual and
Infrequently Occurring Events and Transactions",  (APB 30) for the disposal of a
segment of a business  as  previously  defined in APB 30.  SFAS 144 also  amends
Accounting Research Bulletin No. 51, "Consolidated  Financial Statements",  (ARB
51) to eliminate  the  exception  to  consolidation  for a subsidiary  for which
control is likely to be temporary.  The provisions of SFAS 144 are to be applied
to all long-lived assets,  with the exception of goodwill.  SFAS 144 retains the
requirements  of SFAS 121 to  recognize  an  impairment  loss  only if the carry
amount of the long-lived  asset is not recoverable  from its  undiscounted  cash
flows and measure an  impairment  loss as the  difference  between the  carrying
amount and the fair  value of the asset.  SFAS 144  expands  upon the  criteria,
beyond that  previously  specified  in SFAS 121 to  determine  when a long-lived
asset is held for sale and provides  guidance on the  accounting  for long-lived
assets  classified as held for sale if the asset is being  reclassified  as held
and used.  The  provisions of SFAS 144 are effective for fiscal years  beginning
after  December 15, 2001, and interim  periods  within those fiscal years,  with
early adoption permitted. The provisions of SFAS 144 generally are to be applied
prospectively. We will adopt SFAS 144 in the first quarter of fiscal 2002 and do
not anticipate  that the adoption will have a material  impact on earnings or on
our financial position.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and the documents  incorporated  by reference in
this annual report on Form 10-K contain forward-looking  statements that involve
substantial  risks  and  uncertainties.  In some  cases you can  identify  these
statements by forward-looking  words such as "anticipate,"  "believe,"  "could,"
"estimate," "expect," "intend," "may," "should," "will," and "would," or similar
words.  You should read statements  that contain these words  carefully  because
they discuss  future  expectations,  contain  projections  of future  results of
operations   or  of   financial   position  or  state  other   "forward-looking"
information.  The  important  factors  listed below,  as well as any  cautionary
language  elsewhere  in this  annual  report on Form 10-K,  provide  examples of
risks,  uncertainties  and events  that may cause our  actual  results to differ
materially from the expectations described in these forward-looking  statements.
You should be aware that the  occurrence  of the  events  described  in the risk
factors  below and  elsewhere  in this annual  report on Form 10-K could have an
adverse effect on our business, results of operations and financial position.

Any  forward-looking  statements  in this  annual  report  on Form  10-K are not
guarantees of future performance, and actual results,  developments and business
decisions may differ from those  envisaged by such  forward-looking  statements,
possibly  materially.  We  disclaim  any  duty  to  update  any  forward-looking
statements.

CERTAIN OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS

We face intense competition

Competition is intense in the markets in which we sell our products.  We compete
with a large number of other  companies,  both domestic and foreign,  several of
which are large organizations with diversified product lines,  well-known brands
and financial,  distribution and marketing resources  substantially greater than
ours. The principal  competitors for our Saucony  products are Nike, New Balance
and Asics. The principal  competitors of our Hind products are Nike, Pearl Izumi
and TYR. We compete  based on a variety of  factors,  including  price,  product
style, durability and quality,  product design and technical performance,  brand
image and  awareness,  marketing  and promotion and the ability to meet delivery
commitments  to  retailers.   A  technological   breakthrough  or  marketing  or
promotional  success  by one of  our  competitors  could  adversely  affect  our
competitive position.  The intensity of the competition that we face constitutes
a significant risk to our business.

We depend on foreign suppliers

A number of manufacturers  located in Asia,  primarily in China, supply products
to us. During fiscal 2001, one of our suppliers, located in China, accounted for
approximately  39% of our total  footwear  purchases  by dollar  volume.  We are
subject to the usual risks of a business  involving foreign  suppliers,  such as
currency  fluctuations,  government  regulation  of fund  transfers,  export and
import duties,  administrative  trade cases,  trade  limitations  imposed by the
United States or foreign governments and political and labor instability.  There
are a number of  trade-related  and other issues creating  significant  friction
between the  governments  of the United States and China,  and the imposition of
punitive  import  duties on  certain  categories  of Chinese  products  has been
threatened in the past and may be  implemented  in the future.  In addition,  we
have no  long-term  manufacturing  agreements  with our  foreign  suppliers  and
compete with other athletic shoe and apparel companies, including companies that
are much larger than us, for access to production facilities.

We need to anticipate and respond to consumer preferences and merchandise trends

The footwear  and apparel  industries  are subject to rapid  changes in consumer
preferences.  Demand for our products,  particularly  our Originals line, may be
adversely affected by changing fashion trends and consumer style preferences. We
believe  that  our  success  depends  in  substantial  part  on our  ability  to
anticipate, gauge and respond to changing consumer demands and fashion trends in
a timely manner. In addition, our decisions concerning new product designs often
need to be made several months before we can determine consumer acceptance. As a
result, our failure to anticipate, identify or react appropriately to changes in
styles or features could lead to problems such as excess  inventories and higher
markdowns,  lower gross margins due to the  necessity of providing  discounts to
retailers and the inability to sell such products through our own factory outlet
stores.

Our quarterly results may fluctuate

Our revenues and quarterly operating results may vary significantly depending on
a number of factors, including:

o        the timing and shipment of individual orders;
o        market acceptance of footwear and other products offered by us;
o        changes in our operating expenses;
o        personnel changes;
o        mix of products sold;
o        changes in product pricing;
o        general economic conditions; and,
o        weather.

In addition,  a substantial  portion of our revenue is realized  during the last
few weeks of each  quarter.  As a result,  any delays in orders or shipments are
more  likely to result in  revenue  not  being  recognized  until the  following
quarter, which could adversely impact our results of operations for a particular
quarter.

Our  current  expense  levels  are based in part on our  expectations  of future
revenue. As a result, net income for a given period could be  disproportionately
affected by any reduction in revenue. It is possible that in some future quarter
our revenue or operating  results will be below the expectations of stock market
securities  analysts and investors.  If that were to occur,  the market price of
our common stock could be materially adversely affected.

Our revenues are subject to foreign currency exchange fluctuations

We conduct operations in various international  countries,  and a portion of our
sales is transacted in local currencies.  As a result,  our revenues are subject
to foreign exchange rate fluctuations.  From time to time, our financial results
have been adversely affected by fluctuations in foreign currency exchange rates.
We enter into forward currency exchange  contracts to protect us from the effect
of changes in foreign  exchange rates.  However,  our efforts to reduce currency
exchange losses may not be successful,  and currency  exchange rates may have an
adverse impact on our future operating results and financial condition.

Our business is affected by seasonal consumer buying patterns

The athletic and casual  footwear and athletic  apparel  industries  in which we
compete are generally  characterized  by  significant  seasonality  of sales and
results of  operations.  Sales of our Saucony brand  products have  historically
been seasonal in nature,  with the strongest  sales  generally  occurring in the
first and third  quarters.  In  addition,  sales of our Hind brand  products are
generally  strongest in the third and fourth quarters.  We believe that sales of
our products will continue to follow this seasonal cycle. Therefore, our results
of  operations  for any one quarter may not  necessarily  be  indicative  of the
results that we may achieve for a full fiscal year or any future quarter.

Our operating results may be affected by order cancellations

Customers  may  cancel  orders of our  products  at any time  without  financial
penalty.  As a result, our backlog does not necessarily  represent actual future
shipments.  The rate of customer  cancellations can vary  quarter-to-quarter and
year-to-year.  If the retail market continues to be weak or weakens again in the
future,  our customers could cancel further orders of our products,  which could
have a material adverse effect on our operating results.

We are susceptible to financial difficulties of retailers

We sell our products primarily to major retailers, some of whom have experienced
financial difficulties,  including bankruptcy. We cannot predict what effect the
future  financial  condition of such  retailers  will have on our  business.  In
particular,  we cannot guarantee that our bad debt expenses will not be material
in future periods.

We need effective marketing and advertising programs

Because  consumer demand for our products is heavily  influenced by brand image,
our business  requires  substantial  investments  in marketing and  advertising.
Failure of such  investments to achieve the desired effect in terms of increased
retailer  acceptance or consumer purchase of our products could adversely affect
our financial results. In addition,  we believe that our success depends in part
upon our ability to periodically launch new marketing and advertising  programs.
If  we  are  unable  to  successfully   design  or  execute  new  marketing  and
advertising, or if such programs are ineffective, our business will suffer.

We depend on certain key customers

Approximately 45% of our gross trade  receivables  balance was represented by 16
customers at January 4, 2002.  We  anticipate  that our results of operations in
any  given  period  will  depend to a  significant  extent  upon  sales to major
customers. The loss of or a reduction in the level of sales to one or more major
customers  could  have a  material  adverse  effect on our  business,  financial
condition  and results of  operations.  Furthermore,  if a major  customer  were
unable or unwilling to proceed with a large order or to pay us for a large order
on a timely basis, our business,  financial  condition and results of operations
could be materially adversely affected.

Changes in general economic conditions may adversely affect our business

Our business is sensitive to  consumers'  spending  patterns,  which in turn are
subject  to  prevailing  regional  and  national  economic  conditions,  such as
interest and taxation rates, employment levels and consumer confidence.  Adverse
changes in these  economic  factors  may  restrict  consumer  spending,  thereby
negatively affecting our growth and profitability.


ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are  exposed  to market  risk from  changes  in  interest  rates and  foreign
exchange  rates.  Our  objective in managing our exposure to interest  rates and
foreign  currency  rate changes is to limit the impact of these  changes on cash
flows and earnings and to lower our overall borrowing costs. In order to achieve
these  objectives  we identify the risks and manage them by adjusting  fixed and
variable rate debt positions and  selectively  hedging  foreign  currency risks.
Almost all of our borrowings are based on floating  rates,  which would increase
interest expense in an environment of rising interest rates. We have a policy of
selectively  hedging foreign  currency  risks,  but there are no assurances that
this program will fully insulate us against short-term fluctuations in financial
results.

The fair  value of our  forward  exchange  contracts  as of  January 4, 2002 was
$2,300.  We have  calculated the effect of a 10% change in interest rates over a
one-month  period from January 4, 2002 and also a 10% change in certain  foreign
currency rates over the same period and determined the effects to be immaterial.
We do not expect to make any  significant  changes in our  management of foreign
currency or interest  rate  exposures or in the  strategies  we employ to manage
such exposures in the foreseeable future.


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See  the  Index  to our  Consolidated  Financial  Statements  in Item 14 and the
Consolidated Financial Statements, notes and schedules that are filed as part of
this Form 10-K  following the  signature  page and  incorporated  herein by this
reference.


ITEM 9 -  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

The information  required to be reported in this Item was previously reported in
Saucony's  Current  Report on Form 8-K  dated  April 11,  2001,  filed  with the
Securities and Exchange Commission on April 17, 2001.



<PAGE>


PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

See  "Executive  Officers of the  Registrant" in Part I of this Annual Report on
Form 10-K. The  information  required by Items 401 and 405 of Regulation S-K and
appearing  in  our  definitive   Proxy  Statement  for  the  Annual  Meeting  of
Stockholders to be held on May 23, 2002, which will be filed with the Securities
and  Exchange  Commission  not later  than 120 days after  January  4, 2002,  is
incorporated herein by reference.


ITEM 11 - EXECUTIVE COMPENSATION

The  information  required by Item 402 of  Regulation  S-K and  appearing in our
definitive  Proxy Statement for the Annual Meeting of Stockholders to be held on
May 23, 2002,  which will be filed with the Securities  and Exchange  Commission
not later  than 120 days  after  January  4,  2002,  is  incorporated  herein by
reference.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required by Item 403 of  Regulation  S-K and  appearing in our
definitive  Proxy Statement for the Annual Meeting of Stockholders to be held on
May 23, 2002,  which will be filed with the Securities  and Exchange  Commission
not later  than 120 days  after  January  4,  2002,  is  incorporated  herein by
reference.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND RELATED
STOCKHOLDER MATTERS

The  information  required by Item 404 of  Regulation  S-K and  appearing in our
definitive  Proxy Statement for the Annual Meeting of Stockholders to be held on
May 23, 2002,  which will be filed with the Securities  and Exchange  Commission
not later  than 120 days  after  January  4,  2002,  is  incorporated  herein by
reference.



<PAGE>



PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      1.   Index to Consolidated Financial Statements

              The  following  Consolidated  Financial  Statements  of Saucony,
              Inc. and its  subsidiaries  are included in this report
              immediately following the signature page:

              - Report of Independent Accountants - Arthur Andersen LLP

              - Report of Independent Accountants - PricewaterhouseCoopers LLP -
              Consolidated balance sheets at January 4, 2002 and January 5, 2001

              - Consolidated statements of income for the years ended January 4,
              2002, January 5, 2001, and December 31, 1999

              - Consolidated statements of stockholders' equity for the years
              ended January 4, 2002, January 5, 2001 and December 31, 1999

              - Consolidated statements of cash flows for the years ended
              January 4, 2002, January 5, 2001 and December 31, 1999

              - Notes to the Consolidated Financial Statements


         2.   Index to Consolidated Financial Statement Schedules

              Schedule II  -- Valuation and Qualifying Accounts

               All other  schedules are omitted because they are not applicable,
               not required,  or because the required information is included in
               the Consolidated Financial Statements or notes thereto.

               Separate  financial  statements  of the Company have been omitted
               since it is primarily an operating  company and its  subsidiaries
               included in the Consolidated  Financial  Statements do not have a
               minority equity interest or indebtedness to any person other than
               the Company in an amount which  exceeds 5% of the total assets as
               shown by the Consolidated Financial Statements as filed herein.


         3.   Index to Exhibits

               The exhibits filed as part of this Annual Report on Form 10-K are
               listed on the Exhibit Index immediately  preceding such exhibits,
               which Exhibit Index is incorporated herein by this reference.


(b)      1.   Reports on Form 8-K
              -------------------

               Saucony did not file any  Current  Reports on Form 8-K during the
               fiscal quarter ended January 4, 2002.



<PAGE>



                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                SAUCONY, INC.
                                --------------------------------------------
                                (Registrant)


                                By: /s/ John H. Fisher
                                --------------------------------------------
                                John H. Fisher
                                President and Chief Executive Officer

Date:    April 3, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

           NAME                      CAPACITY                          DATE
           ----                      --------                          ----


/s/ John H. Fisher            President,                           April 3, 2002
-------------------------     Chief Executive Officer and
John H. Fisher                Director
                             (Principal Executive Officer)


/s/ Charles A. Gottesman      Executive Vice President,            April 3, 2002
-------------------------     Business Development and
Charles A. Gottesman          Director


/s/ Michael Umana             Senior Vice President,               April 3, 2002
-------------------------     Chief Operating and Financial
Michael Umana                 Officer
                             (Principal Financial Officer)


/s/ Roger P. Deschenes        Vice President, Controller and       April 3, 2002
-------------------------     Chief Accounting Officer
Roger P. Deschenes           (Principal Accounting Officer)


/s/ John M. Connors, Jr.      Director                             April 3, 2002
-------------------------
John M. Connors, Jr.

/s/ Phyllis H. Fisher         Director                             April 3, 2002
-------------------------
Phyllis H. Fisher

/s/ Jonathan O.  Lee          Director                             April 3, 2002
-------------------------
Jonathan O. Lee

/s/ Robert J. LeFort, Jr.     Director                             April 3, 2002
-------------------------
Robert J. LeFort, Jr.

/s/ John J. Neuhauser         Director                             April 3, 2002
-------------------------
John J. Neuhauser



<PAGE>






Report of Independent Public Accountants


To the Board of Directors of Saucony, Inc.:

We have audited the accompanying  consolidated balance sheet of Saucony, Inc. (a
Massachusetts  corporation)  and  subsidiaries  as of January  4, 2002,  and the
related consolidated statement of income, stockholders' equity and cash flow for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial  position of Saucony,  Inc. and
subsidiaries  as of January 4, 2002,  and the  results of their  operations  and
their  cash  flows  for the year  then  ended,  in  conformity  with  accounting
principles generally accepted in the United States.



                                                            Arthur Andersen LLP



Boston, Massachusetts
February 14, 2002




<PAGE>


Report of Independent Accountants


To The Board of Directors and Shareholders of
Saucony, Inc.

In our opinion, the accompanying consolidated financial statements listed in the
index appearing under Item 14(a)(1)  present fairly,  in all material  respects,
the financial position of Saucony,  Inc. and its subsidiaries at January 5, 2001
and the  results  of their  operations  and their cash flows for each of the two
years in the period  ended  January  5,  2001,  in  conformity  with  accounting
principles  generally accepted in the United States of America. In addition,  in
our opinion,  the financial  statement  schedule  listed in the index  appearing
under Item 14(a)(2) presents fairly, in all material  respects,  the information
set  forth  therein  when  read in  conjunction  with the  related  consolidated
financial  statements.   These  financial  statements  and  financial  statement
schedule are the responsibility of the Company's management;  our responsibility
is to express an opinion on these financial  statements and financial  statement
schedule  based on our audits.  We conducted  our audits of these  statements in
accordance with auditing  standards  generally  accepted in the United States of
America,  which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.





                           PricewaterhouseCoopers LLP


Boston, Massachusetts
February 26, 2001






<PAGE>

<TABLE>



                         SAUCONY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    AS OF JANUARY 4, 2002 AND JANUARY 5, 2001

<CAPTION>
                                     ASSETS
               (in thousands, except share and per share amounts)
                                                                                        January 4,     January 5,
                                                                                           2002           2001
                                                                                           ----           ----
<S>                                                                                    <C>             <C>

Current assets:
   Cash and cash equivalents...........................................................$   22,227      $   4,738
   Accounts receivable, net of allowance for doubtful accounts
     and discounts (2001, $2,457; 2000,  $2,047).......................................    14,742         26,706
   Inventories ........................................................................    28,404         38,404
   Deferred income taxes...............................................................     2,098          1,366
   Prepaid expenses and other current assets...........................................     2,067          2,317
                                                                                       ----------      ---------
     Total current assets..............................................................    69,538         73,531
                                                                                       ----------      ---------

Property, plant and equipment, net of accumulated depreciation and amortization........     6,989          7,581
                                                                                       ----------      ---------

Other assets:
   Goodwill, net of accumulated amortization (2001, $551; 2000, $420)..................       912          1,043
   Deferred charges, net of accumulated amortization (2001, $1,249; 2000, $1,366)......       217            294
   Marketable securities...............................................................       296            343
   Deferred income taxes...............................................................        --            266
   Other...............................................................................       148            227
                                                                                       ----------      ---------
     Total other assets................................................................$    1,573      $   2,173
                                                                                       ----------      ---------

Total assets...........................................................................$   78,100      $  83,285
                                                                                       ==========      =========


                                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable....................................................................$    6,635       $    3,173
   Accrued expenses....................................................................     5,602            6,465
   Current portion of long-term debt and capital lease obligations.....................        88              204
   Letters of credit payable...........................................................        --            3,481
   Notes payable.......................................................................        --            2,596
                                                                                       ----------       ----------
     Total current liabilities.........................................................    12,325           15,919
                                                                                       ----------       ----------

Long-term obligations:
   Capital lease obligations, net of current portion...................................        --               34
   Deferred income taxes...............................................................     1,949            2,140
   Other long-term obligations.........................................................       204              187
                                                                                       ----------       ----------
     Total long-term obligations.......................................................     2,153            2,361
                                                                                       ----------       ----------

Commitments and contingencies:

Minority interest in consolidated subsidiaries.........................................       460              385
                                                                                       ----------       ----------

Stockholders' equity:
   Preferred stock, $1.00 par; authorized 500,000 shares; none issued..................        --               --
   Common stock:
     Class A, $.333 par; authorized 20,000,000 shares
       (issued 2001, 2,711,127 and 2000, 2,711,127)....................................       904              904
     Class B, $.333 par; authorized 20,000,000 shares
       (issued 2001, 4,037,399 and 2000, 4,019,469)....................................     1,346            1,340
   Additional paid-in capital..........................................................    17,398           17,112
   Retained earnings...................................................................    50,702           51,642
   Accumulated other comprehensive loss................................................    (1,301)            (792)
                                                                                       -----------      -----------
                                                                                           69,049           70,206
                                                                                       ----------       ----------
  Less:
   Common stock held in treasury, at cost (2001, 665,976; 2000, 646,500)...............    (5,417)          (5,285)
   Notes receivable....................................................................      (303)            (296)
     Unearned compensation.............................................................      (167)              (5)
                                                                                       -----------      -----------
                                                                                           63,162           64,620
                                                                                       ----------       ----------
Total liabilities and stockholders' equity.............................................$   78,100       $   83,285
                                                                                       ==========       ==========

                        The accompanying notes are an integral part of these consolidated financial statements

</TABLE>

<PAGE>


<TABLE>



                         SAUCONY, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
   FOR THE YEARS ENDED JANUARY 4, 2002, JANUARY 5, 2001 AND DECEMBER 31, 1999
<CAPTION>

               (in thousands, except share and per share amounts)


                                                                            2001           2000          1999
                                                                            ----           ----          ----
                                                                                       (53 Weeks)

<S>                                                                      <C>           <C>           <C>
Net sales................................................................$  132,261    $  167,797    $  155,458
Other revenue............................................................       103           123           429
                                                                         ----------    ----------    ----------

Total revenue............................................................   132,364       167,920       155,887
                                                                         ----------    ----------    ----------

Costs and expenses:
   Cost of sales.........................................................    90,118       105,595        96,616
   Selling expenses......................................................    21,910        25,503        22,388
   General and administrative expenses...................................    18,497        18,038        18,687
   Plant closing and other non-recurring charges.........................     2,108            --            --
   Loss on disposition of cycling division...............................        --         2,661            --
                                                                         ----------    ----------    ----------
     Total costs and expenses............................................   132,633       151,797       137,691
                                                                         ----------    ----------    ----------

Operating income (loss)..................................................      (269)       16,123        18,196

Non-operating income (expense):
   Interest, net.........................................................      (153)         (626)         (683)
   Foreign currency losses...............................................       (46)          (28)          (88)
   Other.................................................................       104            44           164
                                                                         ----------    ----------    ----------

Income (loss) before income taxes and minority interest..................      (364)       15,513        17,589

Provision for income taxes...............................................       475         6,461         7,194

Minority interest in income of consolidated subsidiaries.................       101            89            76
                                                                         ----------    ----------    ----------

Net income (loss)........................................................$     (940)   $    8,963    $   10,319
                                                                         ===========   ==========    ==========

Per share amounts:
   Earnings (loss) per common share - basic..............................$    (0.15)   $     1.45    $     1.64
                                                                         ===========   ==========    ==========
   Earnings (loss) per common share - diluted............................$    (0.15)   $     1.41    $     1.57
                                                                         ===========   ==========    ==========



                        The accompanying notes are an integral part of these consolidated financial statements

</TABLE>

<PAGE>

<TABLE>




                                                 SAUCONY, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           FOR THE YEARS ENDED JANUARY 4, 2002, JANUARY 5, 2001 AND DECEMBER 31, 1999

<CAPTION>
                                              (in thousands, except share amounts)

                                                                       Additional
                                                       Common Stock      Paid-in   Retained      Treasury Stock
                                                     Class A   Class B   Capital   Earnings    Shares     Amount
                                                     -------   -------  ---------  --------    ------     ------

<S>                                                  <C>      <C>       <C>        <C>         <C>        <C>
Balance, January 1, 1999.............................$  902   $ 1,276   $ 15,921   $32,360     305,400    $(1,665)

Issuance of 132,604 shares of common stock upon
   exercise of  stock options........................     2        42        459        --         --         --
Amortization of unearned compensation................    --        --         --        --         --         --
Tax benefit related to stock options.................    --        --        353        --         --         --
Issuance of non-qualified stock options..............    --        --         82        --         --         --
Repurchase of 41,500 shares of common stock, at cost.    --        --         --        --     41,500       (514)
Net income...........................................    --        --         --    10,319         --         --
Foreign currency translation adjustments, net of
   tax expense of $5.................................    --        --         --        --         --         --
                                                     ------   -------   --------   -------     ------     ------

Balance, December 31, 1999...........................$  904   $ 1,318   $ 16,815   $42,679    346,900    $(2,179)

Issuance of 64,160 shares of common stock upon
   exercise of stock options.........................    --        22        297        --         --         --
Interest income on notes receivable..................    --        --         --        --         --         --
Amortization of unearned compensation................    --        --         --        --         --         --
Repurchase of 299,600 shares of common stock, at cost    --        --         --        --    299,600     (3,106)
Net income...........................................    --        --         --     8,963         --         --
Foreign currency translation adjustments, net of
   tax benefit of $167 ..............................    --        --         --        --         --         --
                                                     ------   -------   --------   -------     ------     ------

Balance, January 5, 2001.............................$  904   $ 1,340   $ 17,112   $51,642     646,500    $(5,285)
                                                     ======   =======   ========   =======     =======    ========

Issuance of 17,930 shares of common stock upon
   exercise of stock options.........................    --         6         78        --         --         --
Amortization of unearned compensation................    --        --         --        --         --         --
Issuance of non-qualified stock options..............    --        --          3        --         --         --
Issuance of stock warrants...........................    --        --        197        --         --         --
Tax benefit related to stock options.................    --        --          8        --         --         --
Repurchase of 19,476 shares of common stock, at cost.    --        --         --        --     19,476       (132)
Interest income on note receivable...................    --        --         --        --         --         --
Payment of interest income on note receivable........    --        --         --        --         --         --
Net loss.............................................    --        --         --      (940)        --         --
Foreign currency translation adjustments, net of
   tax benefit of $175...............................    --        --         --        --         --         --
                                                     ------   -------   --------   -------     ------     ------

Balance, January 4, 2002.............................$  904   $ 1,346   $ 17,398   $50,702     665,976    $(5,417)
                                                     ======   =======   ========   =======     =======    ========

                             The accompanying notes are an integral part of these consolidated financial statements

</TABLE>

<PAGE>




<TABLE>


                                                         SAUCONY, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
                                   FOR THE YEARS ENDED JANUARY 4, 2002, JANUARY 5, 2001 AND DECEMBER 31, 1999
<CAPTION>

                                                      (in thousands, except share amounts)

                                                                              Accumulated
                                                                                 Other         Total
                                                     Note        Unearned    Comprehensive Stockholders' Comprehensive
                                                  Receivable   Compensation     Income        Equity     Income (Loss)
                                                  ----------   ------------     ------        ------     -------------

<S>                                                <C>          <C>           <C>            <C>           <C>
Balance, January 1, 1999...........................$    --      $   (16)      $  (528)       $48,250       $     --

Issuance of 132,604 shares of common stock upon
   exercise of  stock options......................     --           --            --            503             --
Amortization of unearned compensation..............     --            5            --              5             --
Tax benefit related to stock options...............     --           --            --            353             --
Issuance of non-qualified stock options............     --           --            --             82             --
Repurchase of 41,500 shares of common stock, at cost    --           --            --           (514)            --
Net income.........................................     --           --            --         10,319         10,319
Foreign currency translation adjustments, net of
   tax expense of $5...............................     --           --           (36)           (36)           (36)
                                                   -------      -------       --------       --------      ---------

Balance, December 31, 1999.........................$    --      $   (11)      $  (564)       $58,962       $ 10,283
                                                                                                           ========

Issuance of 64,160 shares of common stock upon
   exercise of stock options.......................   (276)          --            --             43             --
Interest income on note receivable.................    (20)          --            --            (20)            --
Amortization of unearned compensation..............     --            6            --              6             --
Repurchase of 299,600 shares of common stock, at cost   --           --            --         (3,106)            --
Net income.........................................     --           --            --          8,963          8,963
Foreign currency translation adjustments, net of
   tax benefit of $167.............................     --           --          (228)          (228)          (228)
                                                   -------      -------       --------       --------      ---------

Balance, January 5, 2001...........................$  (296)     $    (5)      $  (792)       $64,620       $  8,735
                                                                                                           ========

Issuance of 17,930 shares of common stock upon
   exercise of stock options.......................     --           --            --             84             --
Amortization of unearned compensation..............     --           38            --             38             --
Issuance of non-qualified stock options............     --           (3)           --             --             --
Issuance of stock warrants.........................     --         (197)           --             --             --
Tax benefit related to stock options...............     --           --            --              8             --
Repurchase of 19,476 shares of common stock, at cost    --           --            --           (132)            --
Interest income on note receivable.................    (18)          --            --            (18)            --
Payment of interest income on note receivable......     11           --            --             11             --
Net loss...........................................     --           --            --           (940)          (940)
Foreign currency translation adjustments, net of
   tax benefit of $175.............................     --           --          (509)          (509)          (509)
                                                   -------      -------       --------       --------      ---------

Balance, January 4, 2002...........................$  (303)     $  (167)      $(1,301)       $63,162       $ (1,449)
                                                   ========     ========      ========       =======       =========

                             The accompanying notes are an integral part of these consolidated financial statements

</TABLE>


<PAGE>

<TABLE>




                                              SAUCONY, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED JANUARY 4, 2002, JANUARY 5, 2001 AND DECEMBER 31, 1999

<CAPTION>
                                                     (in thousands)


                                                                              2001           2000           1999
                                                                              ----           ----           ----
                                                                                          (53 Weeks)
<S>                                                                        <C>            <C>             <C>
Cash flows from operating activities:
   Net income (loss).......................................................$    (940)     $   8,963       $ 10,319
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
     Plant closing and other non-recurring charges.........................    1,725             --             --
     Loss on disposition of cycling division...............................       --          2,661             --
     Depreciation and amortization.........................................    1,969          1,958          1,862
     Provision for bad debt and discounts..................................    5,767          5,525          7,151
     Deferred income tax provision (benefit)...............................     (656)           678            (99)
     Compensation from stock grants and options............................       38              6             82
     Minority interest in income of consolidated subsidiaries..............      101             89             76
     Other.................................................................       12            (12)            45
Changes in operating assets and liabilities, net of effects of dispositions and
   foreign currency adjustments:
Decrease (increase) in assets:
   Accounts  receivable....................................................    6,060         (8,599)       (11,508)
   Inventories.............................................................    9,418         (6,018)        (4,700)
   Prepaid expenses and other current assets...............................       (8)           125            (42)
Increase (decrease) in liabilities:
   Letters of credit payable...............................................   (3,472)         1,210            994
   Accounts payable........................................................    3,484           (412)        (1,242)
   Accrued expenses........................................................   (2,286)        (1,185)         3,337
   Income taxes............................................................      344           (889)          (770)
                                                                           ---------      ----------      ---------
Total adjustments..........................................................   22,496         (4,863)        (4,814)
                                                                           ---------      ----------      ---------
Net cash provided by operating activities..................................   21,556          4,100          5,505
                                                                           ---------      ---------       --------

Cash flows from investing activities:
   Proceeds from the sale of cycling division..............................       --          1,350             --
   Purchases of property, plant and equipment..............................   (1,326)        (1,669)        (1,661)
   Change in deferred charges, deposits and other..........................       62            (30)            (8)
   Marketable securities - realized (gain) loss............................       47            (36)          (127)
   Proceeds from the sale of equipment.....................................        1             --              3
                                                                           ---------      ---------       --------
Net cash used by investing activities......................................   (1,216)          (385)        (1,793)
                                                                           ----------     ----------      ---------

Cash flows from financing activities:
   Net short-term borrowings (payments)....................................   (2,474)           335          (5,429)
   Repayment of long-term debt and capital lease obligations...............     (226)          (360)           (375)
   Common stock repurchased................................................     (132)        (2,688)           (514)
   Issuances of common stock, stock option exercises.......................       84             43             503
                                                                           ---------      ---------       ---------
Net cash used by financing activities......................................   (2,748)        (2,670)         (5,815)
Effect of exchange rate changes on cash and cash equivalents...............     (103)           178             123
                                                                           ----------     ---------       ---------
Net increase (decrease) in cash and cash equivalents.......................   17,489          1,223          (1,980)
Cash and cash equivalents at beginning of period...........................    4,738          3,515           5,495
                                                                           ---------      ---------       ---------
Cash and cash equivalents at end of period.................................$  22,227      $   4,738       $   3,515
                                                                           =========      =========       =========


                        The accompanying notes are an integral part of these consolidated financial statements


</TABLE>

<PAGE>


                         SAUCONY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   For the Years Ended January 4, 2002, January 5, 2001 and December 31, 1999

                      (in thousands, except share amounts)

1.   Summary of Significant Accounting Policies:

     Business Activity

     The  Company is an importer  of a broad line of  high-performance  athletic
     footwear,  athletic apparel and high-quality  casual leather footwear.  The
     Company  markets its products  principally  to domestic  and  international
     retailers and distributors.

     Reporting Period

     The  Company's  fiscal  year ends on the first  Friday  falling on or after
     December 31,  resulting in fiscal years of 52 or 53 weeks. The Consolidated
     Financial Statements and notes for 2001, 2000 and 1999 represent the fiscal
     years  ended  January  4,  2002,  January 5, 2001 and  December  31,  1999,
     respectively.  There were 52 weeks in fiscal 2001,  53 weeks in fiscal year
     2000 and 52 weeks in fiscal 1999. In management's opinion, the Consolidated
     Financial Statements for 2001, 2000 and 1999 are comparable.

     Principles of Consolidation

     The Consolidated Financial Statements include the accounts of Saucony, Inc.
     and all of its majority-owned subsidiaries, domestic and foreign.

     All significant intercompany accounts and transactions have been eliminated
     in consolidation.

     Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported  amounts of assets and liabilities at
     the date of the financial  statements and the reported  amounts of revenues
     and expenses during the reporting period.  Actual results could differ from
     those estimates.

     Risks and Uncertainties

     Competition  is  intense  in the  markets  in which the  Company  sells its
     products. The Company competes with a large number of other companies, both
     domestic  and foreign,  several of which have  diversified  product  lines,
     well-known  brands and  financial,  distribution  and  marketing  resources
     substantially  greater than the  Company's.  Other risks and  uncertainties
     which  could  have a material  adverse  effect on the  Company's  financial
     condition and results of operations are:

     |X|  The Company is substantially  dependent upon foreign  manufacturers to
          supply products.  During fiscal 2001, one of the Company's  suppliers,
          located in China,  accounted  for  approximately  39% of the Company's
          total  footwear  purchases  by dollar  volume;

     |X|  The footwear and apparel  industries in which the Company competes are
          subject to rapid changes in consumer  preferences  and are affected by
          seasonal  consumer  buying  patterns;

     |X|  The Company's revenues and quarterly  operating results may fluctuate;

     |X|  The  Company's  revenues  are  subject  to foreign  currency  exchange
          fluctuation;

     |X|  The   Company's   operating   results   may  be   affected   by  order
          cancellations;

     |X|  The Company is susceptible to the financial difficulties of retailers;

     |X|  The Company's marketing and advertising programs need to be effective;

     |X|  The Company is dependent  upon certain key  customers.  During  fiscal
          2000 and fiscal 1999,  the Company had one customer that accounted for
          approximately 14% and 15% of gross sales, respectively.  During fiscal
          2001, the Company did not have a customer that accounted for more than
          10% of gross sales;

     |X|  Changes  in  general  economic  conditions  may  adversely  affect the
          Company's business.

     Revenue Recognition

     Sales, net of discounts and estimated  returns and allowances,  and related
     costs of sales are recognized  upon shipment when title and all the rewards
     and  risks  of loss  have  been  transferred  to the  buyer,  there  are no
     uncertainties regarding acceptance,  there exists persuasive evidence of an
     arrangement, the sales price is fixed or determinable and collection of the
     related  accounts  receivable  is  probable.  Provisions  for  returns  and
     allowances are  determined on the basis of past  experience and the receipt
     of notification of pending returns.

     Cash and Cash Equivalents

     Cash equivalents  include all short-term deposits with an original maturity
     of three months or less.

     Accounts Receivable

     The Company's  allowance for doubtful accounts is based upon an analysis of
     its  accounts  receivable,  historical  bad debt  trends,  customer  credit
     worthiness,  economic trends and changes in the customer  payment terms. As
     noted in Note 17 of the consolidated  financial statements,  the Company is
     subject to a credit risk  concentration,  due to the  concentration  of our
     domestic Saucony footwear sales amongst a relatively small customer base.

     Inventories

     Inventories  include materials,  labor and overhead and are stated at lower
     of cost or market. Cost is determined using the first-in,  first-out (FIFO)
     method. The Company's provision for excess and obsolete inventories,  equal
     to the difference between the cost of the inventories and the market value,
     is based upon estimated product demand and market conditions.

     Property, Plant and Equipment

     Land,  buildings  and  equipment,  including  significant  improvements  to
     existing facilities, are at the lower of cost or estimated carrying values.
     The  assets are  depreciated  over their  estimated  useful  lives or lease
     terms, if shorter,  using the  straight-line  method.  The estimated useful
     lives of the assets are: 33 years for buildings and  improvements  and 3 to
     15 years for machinery and equipment.  Major renewals and  betterments  are
     capitalized.  Maintenance, repairs and minor property renewals are expensed
     as incurred. The cost and related accumulated depreciation of all property,
     plant and equipment  retired or otherwise  disposed of are removed from the
     accounts.  Any gain or loss resulting from the retirement or disposition of
     property, plant and equipment is included in other non-operating income.

     Investments in Marketable Securities

     Investments in marketable  securities are categorized as trading securities
     which are reported at fair value,  with  changes in fair value  recorded in
     consolidated  net income.  The marketable  securities are included in other
     assets,  because the Company intends to hold these  investments  beyond one
     year.

     Deferred Charges and Goodwill

     Deferred  charges  consist  primarily  of acquired  software  licenses  and
     trademarks. Software licenses and trademarks are amortized over five years.
     Goodwill,  representing the excess of the purchase price over the estimated
     fair value of the net assets of the  acquired  business,  historically  has
     been amortized over the period of expected benefit of 15 years.

     Income Taxes

     The  provision  for income  taxes is  calculated  according to Statement of
     Financial Accounting  Standards No. 109 (SFAS 109),  "Accounting for Income
     Taxes."  Under SFAS 109,  income taxes are provided for the amount of taxes
     payable or refundable  in the current year and for the expected  future tax
     consequences   of  events  that  have  been  recognized  in  the  financial
     statements  or tax  returns.  As a result of  recognition  and  measurement
     differences between tax laws and financial accounting standards,  temporary
     differences arise between the amount of taxable income and pretax financial
     income  for a year and the tax  bases of assets  or  liabilities  and their
     reported  amount in the financial  statements.  The deferred tax assets and
     liabilities  reported as of January 4, 2002 and January 5, 2001 reflect the
     estimated  future tax effects  attributable  to temporary  differences  and
     carryforwards based on the provisions of enacted tax law.

     Earnings per Share

     Earnings per common share is  calculated in  accordance  with  Statement of
     Financial  Accounting  Standards  No. 128  "Earnings Per Share" (SFAS 128).
     Basic  earnings  per share  excludes  the  dilutive  effect of options  and
     warrants.  Diluted  earnings  per share  includes  the  dilutive  effect of
     options and warrants.

     Comprehensive Income

     As  defined  in  Statement  of  Financial  Accounting  Standards  No.  130,
     "Reporting   Comprehensive   Income"  (SFAS  130),   comprehensive   income
     encompasses net income and other  components of  comprehensive  income that
     are  excluded  from net income  under U.S.  generally  accepted  accounting
     principles,  comprising items previously reported directly in stockholders'
     equity. SFAS 130 limits the excluded  components to the following:  foreign
     currency translation adjustments, minimum pension liability adjustments and
     unrealized  gains and  losses on  certain  investments  in debt and  equity
     investments classified as available-for-sale securities.

     The financial statements of the Company's foreign subsidiaries are measured
     using the current  rate method.  Under the current  rate method, assets and
     liabilities  of these  subsidiaries  are translated at exchange rates as of
     the balance  sheet date.  Revenues and expenses are  translated  at average
     rates of  exchange  in effect  during the year.  The  resulting  cumulative
     translation  adjustments  have been  recorded  as a separate  component  of
     stockholders'  equity.  Foreign currency transaction losses are included in
     Other  Comprehensive  Income. Net losses from foreign currency  translation
     amounted to $509, $228 and $36 for 2001, 2000 and 1999, respectively.

     Stock-Based Compensation

     The Company  grants stock options to officers,  key  employees,  directors,
     consultants  and  advisors  with  the  exercise  price  determined  by  the
     Compensation Committee of the Board of Directors.  The Company accounts for
     stock option grants in accordance with Accounting  Principles Board Opinion
     No. 25, "Accounting for Stock Issued to Employees," (APB 25) as interpreted
     by Financial  Accounting  Standards Board Interpretation No. 44 "Accounting
     for Certain  Transactions  Involving Stock  Compensation"  (FIN 44). APB 25
     defines stock  compensation as the excess of the quoted market price of the
     Company's  stock  at the  date of the  grant  over  the  exercise  price an
     employee is required to pay. FIN 44 addresses  and defines the scope of APB
     25 with respect to awards of stock or options to  independent  contractors,
     clarifies the  definition of an employee for purposes of applying APB 25 to
     include  non-employee  board  members,  clarifies  the  criteria  for  plan
     qualification  as a  non-compensatory  plan and  provides  guidance  on the
     accounting  consequences of modifications to the terms of previously issued
     fixed stock options or awards.

     As prescribed  under SFAS 123,  "Accounting for Stock-Based  Compensation,"
     the Company has  disclosed  in Note 11 the pro forma  effects on net income
     and  earnings per share of  determining  stock-based  compensation  expense
     based  upon the fair  value of the  stock  options  granted  subsequent  to
     December 31, 1994. Derivative Instruments and Hedging Activities

     In June 1998, the Financial  Accounting Standards Board issued Statement of
     Financial   Accounting   Standards  No.  133,  "Accounting  for  Derivative
     Instruments  and  Hedging  Activities"  (SFAS  133).  SFAS 133  defines the
     accounting  for  derivative   instruments,   including  certain  derivative
     instruments  embedded in other contracts and hedging  activities.  SFAS 133
     requires  that all  derivatives  must be recognized on the balance sheet at
     their then fair value and any  deferred  gains or losses  remaining  on the
     balance sheet under  previous  hedge-accounting  rules must be removed from
     the balance  sheet.  The  adoption of SFAS 133 on January 6, 2001,  did not
     have a material impact on the Company's  results of operations or financial
     position.

     SFAS 133 requires  companies to recognize  adjustments to the fair value of
     derivatives  that are not hedges currently in earnings when they occur. For
     derivatives  that  qualify  as  hedges,  changes  in the fair  value of the
     derivatives  can  be  recognized  currently  in  earnings,  along  with  an
     offsetting  adjustment  against the basis of the underlying hedged item, or
     can be deferred in other comprehensive income, depending on the exposure of
     the underlying transaction.

     From  time to time,  the  Company  enters  into  forward  foreign  currency
     exchange contracts to hedge certain foreign currency denominated  payables.
     Gains and losses on forward exchange  contracts that qualify as hedges have
     been  recognized  in  consolidated  net  income  along  with an  offsetting
     adjustment against the basis of the underlying hedged item. Gains or losses
     on forward  contracts which do not qualify for special hedge accounting are
     recorded in current earnings in other non-operating income or expense.

     Advertising and Promotion

     Advertising and promotion costs,  including print media  production  costs,
     are expensed as incurred,  with the exception of co-operative  advertising,
     which is  accrued  and the  advertising  costs  expensed  in the  period of
     revenue recognition. Advertising and promotion expense amounted to $10,885,
     $12,904 and $10,065 for 2001, 2000 and 1999, respectively.

     Research and Development Expenses

     Expenditures  for  research  and  development  of products  are expensed as
     incurred.  Research  and  development  expenses  amounted to  approximately
     $1,135, $1,083 and $1,676 for 2001, 2000 and 1999, respectively.

     Related Party Transactions

     At January 4, 2002, the Company held notes of $179 and $124,  respectively,
     from two officers of the Company who are also principal shareholders of the
     Company's  Class A  Common  Stock.  The  notes,  which  are  included  as a
     component of  stockholders'  equity,  were due and were repaid on March 17,
     2002, are full recourse notes and bear interest at 9.0% per annum. Interest
     income from the two notes  amounted to $18 for 2001 and $20 for 2000 and is
     included in the notes receivable as of January 4, 2002 and January 5, 2001.

     Prior Year Statement Reclassification

     In September 2000, the Emerging Issues Task Force ("EITF")  reached a final
     consensus on EITF Issue 00-10,  "Accounting  for Shipping and Handling Fees
     and Costs." This  consensus  requires that all amounts billed to a customer
     in a sales transaction related to shipping and handling,  if any, represent
     revenue and should be classified as revenue. Net sales and costs related to
     shipping and handling  reported by the Company in the prior year, have been
     reclassified to conform to the requirements of EITF 00-10.

     Certain items in prior years' consolidated  financial  statements have been
     reclassified to conform with current year  presentation.

     Recent Accounting Pronouncements

     SFAS 141

     In June 2001, the Financial  Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141).
     SFAS  141  addresses   financial  reporting  and  accounting  for  business
     combinations  and supersedes  Accounting  Principles  Board Opinion No. 16,
     (APB 16) "Business  Combinations",  and  Statement of Financial  Accounting
     Standards No. 38, "Accounting for Preacquisition Contingencies of Purchased
     Enterprises" (SFAS 38). SFAS 141 requires that business combinations in the
     scope of this  Statement  are to be  accounted  for using one  method,  the
     purchase  method.  The  provisions  of  SFAS  141  apply  to  all  business
     combinations  initiated  after June 30, 2001 and are also applicable to all
     business  combinations  accounted for by the purchase  method for which the
     date of acquisition is July 1, 2001, or later. The adoption of SFAS 141 did
     not have a  material  effect  on  earnings  or on the  Company's  financial
     position.

     SFAS 142

     In June 2001, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting  Standards No. 142,  "Goodwill  and Other  Intangible
     Assets",  (SFAS 142). SFAS 142 addresses financial accounting and reporting
     for acquired goodwill and other intangible assets acquired  individually or
     with a group  of other  assets  (excluding  those  acquired  in a  business
     combination)  at  acquisition.   The  statement  also  addresses  financial
     accounting and reporting for goodwill and other  intangibles  subsequent to
     their acquisition.  SFAS 142 supersedes Accounting Principles Board Opinion
     No. 17,  "Intangible  Assets" (APB 17). All of the  provisions  of SFAS 142
     will be applied to goodwill and other  intangible  assets  effective in the
     fiscal years beginning after December 15, 2001. Under SFAS 142 goodwill and
     other indefinite-lived  intangibles will no longer be amortized, but rather
     will be reviewed for  impairment.  An impairment loss will be recognized if
     the  carrying  value  of an  intangible  asset is not  recoverable  and its
     carrying value exceeds its fair value.  Impairment  losses for goodwill and
     indefinite-lived   intangible   assets   that  arise  due  to  the  initial
     application of this Statement are to be reported as resulting from a change
     in  accounting  principle.  The  Company  will  adopt SFAS 142 in the first
     quarter  of  fiscal  2002 and is  currently  assessing  the  impact  of the
     provisions of SFAS 142. At January 4, 2002,  the net book value of goodwill
     was $912. Amortization expense amounted to $131 in fiscal 2001 and we would
     have recorded amortization expense of $113 in fiscal 2002. The Company does
     not anticipate that the adoption of SFAS 142 will have a material impact on
     earnings or on the Company's financial position.

     SFAS 143

     In August 2001, the Financial  Accounting  Standards Board issued Statement
     of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
     Obligations",  (SFAS 143).  SFAS 143  addresses  financial  accounting  and
     reporting  for  obligations  associated  with the  retirement  of  tangible
     long-lived  assets  and the  associated  asset  retirement  cost.  SFAS 143
     applies to all companies that incur legal  obligations  to retire  tangible
     long-lived   assets  that  result  from  the   acquisition,   construction,
     development  or  normal  operation  of a  long-lived  asset.  SFAS  143  is
     effective for fiscal years  beginning  after June 15, 2002. The Company has
     not determined the impact of adopting SFAS 143 on its results of operations
     or financial position.

     SFAS 144

     In August 2001, the Financial  Accounting  Standards Board issued Statement
     of Financial  Accounting  Standards No. 144,  "Accounting for Impairment or
     Disposal of Long-Lived  Assets",  (SFAS 144). SFAS 144 addresses  financial
     accounting  and  reporting  for the  impairment  or disposal of  long-lived
     assets, and supercedes Statement of Financial Accounting Standards No. 121,
     "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
     Assets to Be Disposed Of",  (SFAS 121),  and the  accounting  and reporting
     provisions of Accounting  Principles  Board Opinion No. 30,  "Reporting the
     Results of Operations - Reporting the Effects of Disposal of a Segment of a
     Business, and Extraordinary,  Unusual and Infrequently Occurring Events and
     Transactions",  (APB 30) for the  disposal  of a segment of a  business  as
     previously  defined in APB 30.  SFAS 144 also  amends  Accounting  Research
     Bulletin No. 51, "Consolidated Financial Statements" (ARB 51) to eliminate
     the exception to consolidation for a subsidiary for which control is likely
     to be  temporary.  The  provisions  of SFAS  144 are to be  applied  to all
     long-lived  assets,  with the  exception of goodwill.  SFAS 144 retains the
     requirements  of SFAS  121 to  recognize  an  impairment  loss  only if the
     carrying  amount  of the  long-lived  asset  is not  recoverable  from  its
     undiscounted  cash flows and measure an impairment  loss as the  difference
     between  the  carrying  amount and the fair  value of the  asset.  SFAS 144
     expands upon the criteria,  beyond that previously specified in SFAS 121 to
     determine when a long-lived asset is held for sale and provides guidance on
     the  accounting for  long-lived  assets  classified as held for sale if the
     asset is being  reclassified  as held and used.  The provisions of SFAS 144
     are  effective  for fiscal years  beginning  after  December 15, 2001,  and
     interim periods within those fiscal years,  with early adoption  permitted.
     The provisions of SFAS 144 generally are to be applied  prospectively.  The
     Company  will adopt SFAS 144 in the first  quarter of fiscal  2002 and does
     not anticipate that the adoption will have a material impact on earnings or
     on the Company's financial position.

2.   Marketable Securities:

     As of January 4, 2002,  the  Company's  holdings in  marketable  securities
     consisted  primarily of equity  securities  which are classified as trading
     securities.

     The cost of the securities held at January 4, 2002, and January 5, 2001 was
     $204 and $218, respectively. As of January 4, 2002 and January 5, 2001, the
     market value of such securities was $296 and $343, respectively.

     Included in the  determination of net income for the years ended January 4,
     2002,  January 5, 2001  and  December  31, 1999  were:  2001,  net realized
     losses of $15 and unrealized losses of $32; 2000, net realized gains of $86
     and  unrealized  losses of $50; and 1999,  net realized gains of $1 and net
     unrealized gains of $127, respectively.

3.   Inventories:

     Inventories  at  January  4,  2002 and  January  5, 2001  consisted  of the
     following:

                                                    2001                  2000
                                                    ----                  ----

        Finished goods...........................$  25,466            $   31,529
        Raw materials and supplies...............    1,501                 6,048
        Work-in-process..........................    1,437                   827
                                                 ---------            ----------
        Total....................................$  28,404            $   38,404
                                                 =========            ==========

4.   Property, Plant and Equipment:

     Major  classes  of  property,  plant and  equipment  at January 4, 2002 and
     January 5, 2001 were as follows:
                                                      2001              2000

        Land and improvements......................$     598        $      598
        Buildings and improvements.................    6,270             6,165
        Machinery and equipment....................   11,523            10,832
        Capitalized leases.........................    1,696             1,666
        Leasehold improvements.....................      793               533
                                                   ---------        ----------
                                                   $  20,880        $   19,794
        Less accumulated depreciation
        and amortization...........................   13,891            12,213
                                                   ---------        ----------

        Total......................................$   6,989        $    7,581
                                                   =========        ==========

     Accumulated  amortization  of leased  property  was  $1,473  and  $1,331 at
     January 4, 2002 and January 5, 2001, respectively.

5.   Accrued Expenses:

     Accrued  expenses at January 4, 2002 and January 5, 2001  consisted  of the
     following:

                                                          2001            2000
                                                          ----            ----

         Payroll and bonuses...........................$  1,223       $   2,460
         Plant closing and other non-recurring
           charges.....................................   1,461              --
         Sales commissions.............................     289             508
         Selling and advertising.......................     130             287
         Other.........................................   2,499           3,210
                                                       --------       ---------
         Total.........................................$  5,602       $   6,465
                                                       ========       =========

6.   Capital Lease Obligations:

     The following is a schedule of future  minimum lease payments under capital
     leases together with the present value of the net minimum lease payments as
     of January 4, 2002:

        2002.......................................................$      91
                                                                   ---------
        Total minimum lease payments...............................       91
        Less amounts representing interest.........................        3
                                                                   ---------
        Present value of minimum lease payments....................       88
        Less current portion.......................................       88
                                                                   ---------
        Long-term portion..........................................$      --
                                                                   =========

7.   Employee Retirement Plans:

     The Company has  maintained a qualified  retirement  savings plan  ("401(k)
     Plan") since 1991. All United States  employees of the Company who meet the
     minimum age and service  requirements  are eligible to  participate  in the
     401(k) Plan, as amended.  The Company may make discretionary  contributions
     to the  401(k)  Plan  equal to a certain  percentage  of the  participating
     employees' contributions,  subject to the limitations imposed by the 401(k)
     Plan and the Internal Revenue Code. The Company's contributions amounted to
     $175, $211 and $121 for 2001, 2000 and 1999, respectively.

     In 1995, the Company established a deferred compensation program ("DCP") to
     provide key executives and highly  compensated  employees with supplemental
     retirement  benefits.  Eligibility is determined by the Company's  Board of
     Directors.  The DCP is not  qualified  under  Section  401 of the  Internal
     Revenue Code. The Company may make  discretionary  contributions to the DCP
     equal to a  certain  percentage  of the  participants'  contributions.  The
     Company's  contributions  amounted to $19,  $18 and $31 for 2001,  2000 and
     1999, respectively.

     At the 2001  Annual  Meeting  of  Stockholders  held on May 24,  2001,  the
     stockholders  approved the Company's 2001 Employee Stock Purchase Plan (The
     "Employee  Stock  Purchase  Plan"),  adopted  by  the  Company's  Board  of
     Directors  on April 6, 2001.  An  aggregate  of  250,000  shares of Class B
     Common  Stock,  $0.33-1/3 par value per share of Saucony,  Inc.,  have been
     reserved by the Company and may be issued under the Employee Stock Purchase
     Plan.  The  plan  provides  employees  of the  Company  and its  designated
     subsidiaries  with an opportunity  to purchase  common stock of the Company
     through accumulated  payroll deductions,  at a price per share equal to 85%
     of the fair market value of a share of common stock on the enrollment  date
     or on the  exercise  date,  whichever  is lower.  The plan  qualifies as an
     "Employee  Stock Purchase  Plan" under Section 423 of the Internal  Revenue
     Code  and  its   provisions  are  construed  so  as  to  extend  and  limit
     participation in a manner  consistent with the requirements of that section
     of the code.

     All employees who meet minimum age and service requirements are eligible to
     participate  in the 2001 Employee Stock  Purchase  Plan.  Employee  payroll
     deductions  associated  with the 2001 Employee Stock Purchase Plan began in
     September 2001. As of January 4, 2002,  employee payroll  deductions of $18
     have been made in  accordance  with the plan.  There were no  purchases  of
     common stock made under the plan as of January 4, 2002.

8.   Commitments and Contingencies:

     Operating Lease Commitments

     The Company is obligated under various  operating  leases for equipment and
     rental space through 2010.  Total  equipment and rental  expenses for 2001,
     2000 and 1999 were $1,720,  $1,261 and $903,  respectively.  Future minimum
     equipment and rental payments are as follows:  2002, $1,480;  2003, $1,244;
     2004, $1,071; 2005, $628; 2006 and thereafter, $526.

     Short-Term Borrowing Arrangements

     On August 31, 1998, the Company entered into a revolving  credit  agreement
     under the terms of which a bank  committed a maximum credit line of $15,000
     to the  Company  for cash  borrowings  and  letters of  credit.  The credit
     facility  was  amended and  increased  on March 12, 1999 to $20,000 and was
     increased  on May 23,  2000 to  $30,000  for the  period  from May 1,  2000
     through September 30, 2000. The credit facility was further amended in 2002
     and reduced to $15,000,  terminating on June 30, 2002. The Company  expects
     to  negotiate  and  extend  the  facility,  or a  similar  facility,  under
     comparable  terms  and  conditions.  Borrowings  under  the  facility  bear
     interest at either the bank's prime rate of interest,  less 1.0%, or at the
     LIBO rate, plus 1.5%. In addition,  the Company pays a quarterly commitment
     fee of 0.375% on the average daily unused credit line. The credit  facility
     contains  restrictions and financial covenants  including:  restrictions on
     additional  indebtedness,  restrictions  on the  declaration  or payment of
     dividends and the repurchase of common stock, a minimum tangible net worth,
     as defined,  restrictions on annual capital expenditures, a minimum current
     ratio,  as  defined,  a  minimum  leverage  ratio  and a  minimum  interest
     coverage, as defined. The credit facility is subject to the bank's periodic
     review of the Company's operations.

     In February  2002,  the Company's  primary lender amended the definition of
     EBIT,  earnings before interest and taxes,  under the credit facility.  The
     amendment  modified the calculation of minimum interest expense coverage in
     relation to EBIT, to exclude the  non-recurring  charges of $2,108 incurred
     by the Company in the fourth quarter of fiscal 2001. The amendment  applied
     solely  to the  Company's  compliance  with the  minimum  interest  expense
     coverage  covenant  under the credit  facility  with  respect to the fiscal
     quarters  ended  January  4,  2002 and April 5,  2002.  The  Company  is in
     compliance  with all other  covenants of the credit  facility at January 4,
     2002 taking into consideration the amendment to the definition of EBIT.

     On March  25,  1998,  the  Company's  primary  lender  and  several  of the
     Company's foreign  subsidiaries  entered into demand lines of credit letter
     agreements to provide  working  capital  resources.  Demand lines of credit
     were made available as follows: Saucony Sports BV, Dutch Guilders 3,500,000
     and Saucony UK, Inc.,  British Pounds 800,000.  The lines of credit are not
     committed  facilities,  therefore,  the  availability of advances under the
     lines of credit are at the sole discretion of the bank. At January 4, 2002,
     there were no borrowings under the demand lines of credit.

     Saucony Canada,  Inc.  maintains a credit facility with a Canadian  lender.
     The  agreement  provides  Saucony  Canada  with a credit  line of  Canadian
     Dollars  1,500,000 for cash borrowings and letters of credit. At January 4,
     2002, there were no borrowings or letters of credit  outstanding under this
     credit outstanding under this credit facility.


<PAGE>



     Employment Agreements

     During fiscal 2001, the Company entered into employment agreements with two
     key executives.  The employment  agreements  provide for minimum  aggregate
     annual base salaries of $925, annual consumer price index adjustments, life
     insurance  coverage,  cash  bonuses  calculated  as  a  percentage  of  the
     Company's  consolidated pre-tax income and other perquisites commonly found
     in such  agreements.  The employment  agreements are scheduled to expire in
     August  2003,  but  extend  automatically  for  additional  one-year  terms
     beginning  upon such scheduled  expiration  unless prior notice is given by
     the Company or the  employee.  The Company has included an aggregate  bonus
     expense  to the key  executives  of $0,  $853 and  $1,402  in  general  and
     administrative  expenses  for fiscal  2001,  fiscal  2000 and fiscal  1999,
     respectively.  Included in accrued  expenses at January 4, 2002 and January
     5, 2001, are accrued bonus expense of $0 and $852, respectively.

     Litigation

     The  Company is  involved  in various  routine  litigation  incident to its
     business.  Many of these  proceedings  are  covered  in whole or in part by
     insurance.  In management's  opinion, none of these proceedings is expected
     to have a material  adverse  effect on the  Company's  financial  position,
     operations  or  cash  flows   (irrespective  of  any  potential   insurance
     recovery).

9.   Common Stock:

     The Company has two classes of Common  Stock.  The Class A Common Stock has
     voting rights. The Class B Common Stock is non-voting,  except with respect
     to  amendments  to the  Company's  Articles of  Organization  that alter or
     change the  powers,  preferences  or  special  rights of the Class B Common
     Stock so as to affect them adversely and as otherwise  required by law. The
     Class B Common Stock has certain features, including a "Class B Protection"
     feature  and a  feature  pursuant  to which  the  Class B  Common  Stock is
     entitled  to receive  cash  dividends  equal to 110% of the cash  dividends
     payable on Class A Common Stock, if any, which are intended to minimize the
     economic  reasons  for the  Class A Common  Stock  to  trade  at a  premium
     compared to the Class B Common Stock. The other terms of the Class A Common
     Stock and Class B Common  Stock,  including  rights with respect to special
     cash dividends, stock dividends,  stock splits,  consideration payable in a
     merger or consolidation and distributions  upon liquidation,  generally are
     the same.

     As of January 4, 2002, January 5, 2001 and December 31, 1999, the number of
     shares of Class A Common Stock and Class B Common Stock outstanding were as
     follows:

                                                      Class A          Class B
                                                      Common           Common
                                                       Stock            Stock

        Shares outstanding at January 1, 1999.......  2,679,027       3,549,405
        Shares issued...............................      4,100         128,504
        Shares repurchased..........................    (15,000)        (26,500)
                                                    ------------    ------------
        Shares outstanding at December 31, 1999.....  2,668,127       3,651,409

        Shares issued...............................         --          64,160
        Shares repurchased..........................    (98,000)       (201,600)
                                                    ------------    ------------
        Shares outstanding at January 5, 2001.......  2,570,127       3,513,969
        Shares issued...............................         --          17,930
        Shares repurchased..........................     (3,380)        (16,096)
                                                    ------------    ------------
        Shares outstanding at January 4, 2002.......  2,566,747       3,515,803
                                                    ===========     ===========

10.  Stock Options and Stock Purchase Warrants:

     Under the  Company's  1993 Equity  Incentive  Plan (the  "Equity  Incentive
     Plan") the Company may grant incentive  stock options and restricted  stock
     awards to officers,  key employees  and  Directors of the Company.  Outside
     consultants   and   advisors  to  the  Company  are   eligible  to  receive
     non-statutory stock options and awards of restricted stock.

     The Equity Incentive Plan is administered by the Compensation  Committee of
     the Board of Directors,  which, at its sole  discretion,  grants options to
     purchase shares of Common Stock and makes awards of restricted  stock.  The
     purchase  price per share of Common Stock shall be  determined by the Board
     of  Directors,  provided,  however,  that in the  case of  incentive  stock
     options,  the  purchase  price may not be less than 100% of the fair market
     value of such stock at the time of grant of the option. The terms of option
     agreements are established by the Board of Directors, except in the case of
     incentive  stock options,  the term of which may not exceed ten years.  The
     vesting schedule is subject to the discretion of the Board of Directors.

     Restricted  stock awards  granted under the Equity  Incentive  Plan entitle
     recipients  to purchase  shares of the  Company's  Common Stock  subject to
     restrictions  concerning  the sale,  transfer and other  disposition of the
     shares  issued  until  such  shares  are  vested.  The  Board of  Directors
     determines the purchase price, which may be less than the fair market value
     of the Common Stock, and the vesting schedule for such awards.

     At January 4, 2002, a total of 1,900,000 shares, in the aggregate, of Class
     A Common Stock and Class B Common  Stock have been  reserved by the Company
     and may be issued under the Plan.

     The  Director  Stock  Option  Plan  provides  for the  automatic  grant  to
     non-employee  directors  of  non-statutory  stock  options  upon  specified
     occasions.  A total of  100,000  shares of Class B Common  Stock  have been
     reserved for issuance under the plan.  The option  purchase price per share
     equals  the fair  market  value of Class B Common  Stock on the date of the
     grant.  The options are exercisable at any time, in whole or in part, prior
     to the fifth  anniversary of the date of the grant.  No further options may
     be granted under the Director Stock Option Plan, which expired in 1998. The
     remaining 62,000 shares reserved under the Plan are no longer available for
     grant.

     The following  table  summarizes  the awards  available for grant under the
     Company's 1993 Equity  Incentive Plan for the three-year  reporting  period
     ended January 4, 2002:

                                                                        Shares

         Shares available at January 1, 1999........................    629,770
         Awards granted.............................................   (346,575)
         Options expired or cancelled...............................     56,265
                                                                    -----------
         Shares available at December 31, 1999......................    339,460
         Additional shares reserved.................................    750,000
         Awards granted.............................................   (239,847)
         Options expired or cancelled...............................     21,300
                                                                    -----------
         Shares available at January 5, 2001........................    870,913
         Awards granted.............................................   (284,801)
         Options expired or cancelled...............................     72,465
                                                                    -----------
         Shares available at January 4, 2002........................    658,577
                                                                    ===========


     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
     Stock-Based  Compensation"  (SFAS 123),  encourages,  but does not require,
     companies to record compensation cost for stock-based employee compensation
     plans at fair  value.  The  Company  has  elected  to  continue  to measure
     stock-based   compensation   expense  using  the  intrinsic   value  method
     prescribed by Accounting  Principles Board Opinion No. 25,  "Accounting for
     Stock Issued to Employees," as further  interpreted by FIN 44. Accordingly,
     compensation cost for stock options and restricted stock awards is measured
     as the excess, if any, of the quoted market price of the Company's stock at
     the date of the  grant  over the  exercise  price an  employee  must pay to
     acquire the stock.

     The Company amortizes stock-based compensation arising from the issuance of
     restricted  stock warrants and below market options over the vesting period
     of the stock grant or option term. Amortization of stock-based compensation
     amounted to $7, $6 and $5 for 2001, 2000 and 1999, respectively.

     The following  table  summarizes the Company's  stock option activity as of
     December 31, 1999, January 5, 2001 and January 4, 2002:
<TABLE>
<CAPTION>

                                                                                  Weighted
                                                                                   Average
                                                                                  Exercise            Option
                                                                Shares              Price           Price Range

           <S>                                                  <C>              <C>           <C>         <C>
           Outstanding at January 1, 1999.....................   334,584         $  4.28       $  2.00   - $   6.50

                Granted.......................................   346,575         $  9.81       $  4.13   - $  22.63
                Exercised.....................................  (132,604)        $  3.79       $  2.00   - $   6.50
                Forfeited.....................................   (42,265)        $  8.00       $  4.44   - $  23.63
                Expired.......................................    (4,000)        $  5.75       $  5.75
                Cancelled.....................................   (14,000)        $  5.13       $  4.75   - $   5.63
                                                              -----------

           Outstanding at December 31, 1999...................   488,290         $  7.99       $  4.00   - $  23.63

                Granted.......................................   239,847         $ 11.75       $  9.88   - $  14.25
                Exercised.....................................   (64,160)        $  4.73       $  4.00   - $   6.50
                Forfeited.....................................   (25,300)        $ 12.91       $  4.88   - $  23.63
                                                              -----------

           Outstanding at January 5, 2001.....................   638,677         $  9.59       $  4.00   - $  19.88

                Granted.......................................   284,801         $  6.64       $  4.50   - $  10.50
                Exercised.....................................   (17,930)        $  4.67       $  4.00   - $   5.13
                Forfeited.....................................   (65,465)        $  7.63       $  4.13   - $  14.63
                Expired.......................................    (7,000)        $  4.19       $  4.00   - $   4.44
                                                              -----------

           Outstanding at January 4, 2002.....................   833,083         $  8.89       $  4.00   - $  19.88
                                                              ==========
</TABLE>


     Options  exercisable for shares of the Company's Class A and Class B Common
     Stock as of December 31,  1999,  January 5, 2001 and January 4, 2002 are as
     follows:
<TABLE>
<CAPTION>

                                                                 Options Exercisable
                                       -----------------------------------------------------------------------

                                                                                       Weighted Average
                                                                                        Exercise Price
                                                                                   -----------------------
                                         Class A      Class B                       Class A        Class B
                                         Common       Common                        Common         Common
                                          Stock        Stock          Total          Stock          Stock


          <S>                             <C>         <C>             <C>           <C>          <C>
          December 31, 1999..............  --         203,220         203,220        --          $   5.88

          January 5, 2001................  --         232,090         232,090        --          $   7.89

          January 4, 2002................  --         396,209         396,209        --          $   8.81


</TABLE>

<PAGE>


     The following table summarizes  information about stock options outstanding
     at January 4, 2002:
<TABLE>
<CAPTION>

                                                   Options Outstanding                      Options Exercisable
                                      ---------------------------------------------     ----------------------------
                                                          Weighted
                                          Shares           Average       Weighted           Shares         Weighted
                                        Outstanding       Remaining       Average         Exercisable       Average
                     Range of               at           Contractual     Exercise             at           Exercise
                  Exercise Prices        01/04/02       Life (Years)       Price           01/04/02          Price

              <S>         <C>             <C>               <C>          <C>                <C>            <C>           <C>
              $  4.00   - $  4.88           71,180          0.88         $  4.48             55,730        $  4.49
              $  5.00   - $  5.76          185,520          3.92         $  5.40             90,988        $  5.23
              $  6.00   - $  7.06          198,945          9.21         $  6.71             76,140        $  6.25
              $  7.28   - $  8.06           26,000          4.17         $  7.69                 --        $    --
              $  9.88   - $ 10.50            2,500          3.66         $ 10.21                500        $ 10.21
              $ 11.00   - $ 11.38          149,100          6.82         $ 11.26             80,433        $ 11.27
              $ 12.13   - $ 13.44           93,838          3.08         $ 12.46             19,768        $ 12.46
              $ 14.25   - $ 14.69           44,750          2.79         $ 14.68             37,483        $ 14.69
              $ 16.16   - $ 17.75           60,250          2.80         $ 16.53             34,767        $ 16.42
              $ 19.88                        1,000          2.58         $ 19.88                400        $ 19.88
                                        ----------                                        ---------
                                           833,083                                          396,209
                                        ==========                                        =========
</TABLE>

     On March 12, 2001,  the Company  issued common stock  purchase  warrants to
     purchase,  in the aggregate,  50,250 shares of the Company's Class B Common
     Stock at a per share price of $7.00 to five of our footwear factories.  The
     stock  purchase  warrant  grant  was  approved  by the  Company's  Board of
     Directors  on  February  27,  2001.  The  warrants  were issued for no cash
     consideration; but rather as an incentive to the recipients of the warrants
     to satisfy  specific  performance  criteria  which  support  the  Company's
     financial  and  operating  goals.  The  warrants  vest in five equal annual
     installments,  commencing  on March 12, 2002 and expire on March 12,  2006.
     The right to  exercise  the  warrants  is  subject to the  satisfaction  of
     specific  performance  criteria  by the  recipients.  Fair value at date of
     grant for the warrants was $3.93 per warrant.  Amortization  of stock-based
     compensation  resulting  from the stock  purchase  warrant  grant  over the
     vesting period of the warrant term amounted to $31 for 2001 and is recorded
     as a component of cost of goods sold. The warrants were not included in the
     computation of earnings per share since they were anti-dilutive.

11.  Earnings Per Share

     The following table sets forth the computation of basic earnings per common
     share and diluted earnings per common share:
<TABLE>
<CAPTION>

                                                    2001                       2000                      1999
                                           ----------------------     ----------------------    ----------------------

                                              Basic       Diluted       Basic       Diluted       Basic        Diluted
                                              -----       -------       -----       -------       -----        -------
       <S>                                 <C>          <C>           <C>          <C>          <C>          <C>
       Net income (loss) available for
         common shares and

         assumed conversions...............$   (940)    $   (940)     $ 8,963      $ 8,963      $ 10,319     $ 10,319
                                           =========    =========     =======      =======      ========     ========

       Weighted-average common shares and
         equivalents outstanding:

       Weighted-average shares
          outstanding......................   6,080        6,080        6,192        6,192         6,292        6,292

         Effect of dilutive securities:
          Stock options....................      --           --           --          149            --          276
                                           --------     --------      -------      -------      --------     --------
                                              6,080        6,080        6,192        6,341         6,292        6,568
                                           ========     ========      =======      =======      ========     ========
       Earnings per share:
         Net income (loss).................$   (.15)    $   (.15)     $  1.45      $  1.41      $  1.64      $   1.57
                                           =========    =========     =======      =======      =======      ========
</TABLE>


     Options  to  purchase  833,000  and  375,000  shares of common  stock  were
     outstanding at January 4, 2002 and January 5, 2001, respectively,  but were
     not   included  in  the   computations   of  EPS  since  the  options  were
     anti-dilutive.

     The  weighted  average  fair value at date of grant for options  granted in
     2001,  2000 and 1999 was $3.57,  $6.45 and $4.91 per option,  respectively.
     The  weighted-average  fair value of these options at the date of grant was
     estimated using the Black-Scholes  option-pricing  model with the following
     weighted-average   assumptions  for  2001,  2000  and  1999,  respectively:
     risk-free interest rates of 5.0%, 6.5% and 5.5%;  dividend yields of 0%, 0%
     and 0%;  volatility  factors of the expected  market price of the Company's
     common stock of 71.9%,  70.0% and 62.3%;  and a  weighted-average  expected
     life of the options of 3.4, 3.7 and 3.5 years.

     Had the Company  determined the  stock-based  compensation  expense for the
     Company's  stock  options  based  upon the fair value at the grant date for
     stock option awards in 2001, 2000 and 1999,  consistent with the provisions
     of SFAS 123,  the  Company's  net income  (loss) and net income  (loss) per
     share would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                   2001                     2000                       1999
                                          ----------------------     ---------------------     ----------------------

                                             Basic       Diluted       Basic       Diluted       Basic       Diluted
                                          ---------   ---------      --------     --------     --------     ---------

      <S>                                <C>          <C>            <C>          <C>          <C>          <C>
       Net income (loss):

         As reported                     $    (940)   $    (940)     $ 8,963      $ 8,963      $ 10,319     $ 10,319
         Compensation expense for
          stock, net of tax                   (746)        (746)        (535)        (535)         (304)        (304)
                                         ----------   ----------     --------     --------     ---------    ---------

       Pro forma net income (loss)       $  (1,686)   $  (1,686)     $ 8,428      $ 8,428      $ 10,015     $ 10,015
                                         ==========   ==========     =======      =======      ========     ========

       Pro forma earnings per share:
         As reported                     $   (0.15)   $   (0.15)     $  1.45      $  1.41      $  1.64      $  1.57
         Compensation expense for
          stock, net of tax                  (0.12)       (0.12)       (0.09)       (0.08)       (0.05)       (0.05)
                                         ----------   ----------     --------     --------     --------     --------


       Pro forma net income (loss)
         per share                       $   (0.27)   $   (0.27)     $  1.36      $  1.33      $  1.59      $  1.52
                                         ==========   ==========     =======      =======      =======      =======

</TABLE>




<PAGE>



12.  Income Taxes:

     The  provision  for income  taxes was based on pre-tax  income  (loss) from
     operations  before  minority  interest which was subject to taxation by the
     following jurisdictions:

                                          2001           2000            1999
                                          ----           ----            ----
       Pre-tax income (loss):

           United States..............$   (1,261)     $   14,660      $  15,864
           Foreign....................       897             853          1,725
                                      ----------      ----------      ---------
           Total......................$     (364)     $   15,513      $  17,589
                                      ===========     ==========      =========


     The provision for income taxes consists of the following:

                                           2001          2000            1999
                                           ----          ----            ----
      Current:
            Federal....................$     426      $    4,129      $   5,349
            State......................      165           1,129          1,511
            Foreign....................      540             525            421
                                       ---------      ----------      ---------
                                           1,131           5,783          7,281
                                       ---------      ----------      ---------
      Deferred:
            Federal....................     (828)            523           (139)
            State......................     (176)            132            (47)
            Foreign....................      (39)            (62)           466
                                       ----------     -----------     ---------
                                          (1,043)            593            280
                                       ----------     ----------      ---------

      Change in valuation allowance....      387              85           (367)
                                       ---------      ----------      ----------
            Total......................$     475      $    6,461      $   7,194
                                       =========      ==========      =========


     The net  deferred  tax  asset or  liability  reported  on the  consolidated
     balance  sheet  consists of the  following  items as of January 4, 2002 and
     January 5, 2001:

                                                               2001      2000
                                                               ----      ----
     Net current deferred tax assets:
       Allowance for doubtful accounts and discounts........$   785     $   522
       Inventory allowances and tax costing adjustments.....    287         193
       Deferred compensation................................    549         404
       Other accrued expenses...............................    514         297
       Unrealized gain on marketable securities.............    (37)        (50)
                                                            --------    --------
          Total.............................................$ 2,098     $ 1,366
                                                            -------     -------

     Net long-term deferred tax assets:
       Foreign loss carryforwards...........................$   570     $   449
       Valuation allowance..................................   (570)       (183)
                                                            --------    --------
          Total.............................................$     0     $   266
                                                            -------     -------

     Net long-term deferred tax liabilities:
       Property, plant and equipment........................$   739     $   939
       Investment in limited partnership....................  1,210       1,201
                                                            -------     -------
          Total.............................................$ 1,949     $ 2,140
                                                            -------     -------

        Net deferred tax asset (liability)..................$   149     $  (508)
                                                            =======     ========

     The foreign loss carryforwards  relate to operating losses of approximately
     $1,564, which may be carried forward indefinitely.  At January 4, 2002, the
     Company  has  determined  that it is more  likely  than not that all of the
     deferred tax assets  resulting  from foreign  operating  losses will not be
     realized.

     The Company has not recorded  deferred  income  taxes on the  undistributed
     earnings  of  foreign  subsidiaries  that are  indefinitely  reinvested  in
     foreign  operations.  These earnings  amounted to  approximately  $3,076 at
     January 4, 2002.

     A reconciliation of the expected tax computed at the U.S. statutory federal
     income tax rate to the total provision for income taxes follows:
<TABLE>
<CAPTION>

                                                                                 2001         2000        1999
                                                                                 ----         ----        ----

         <S>                                                                  <C>         <C>           <C>
         Expected tax at 34%..................................................$   (124)   $   5,275     $  5,980
         U.S. federal income tax surcharge....................................      --           --           50
         State income tax, net of federal benefit.............................      (7)         833          967
         Non-deductible expenses and tax-exempt income........................      40          100          294
         International tax rate differences...................................     124          174          291
         Detriment (benefit) of valuation allowance relating
           to foreign losses..................................................     387           85         (367)
         Low-income housing tax credits.......................................      (5)          (6)         (21)
         Adjustment of prior years' estimated tax liabilities.................      60           --           --
                                                                              --------    ---------     --------
         Provision for income taxes...........................................$    475    $   6,461     $  7,194
                                                                              ========    =========     ========
</TABLE>

13.  Sale of Cycling Division:

     On June 29,  2000,  the Company  sold  substantially  all of the assets and
     business  of  its  cycling  division,   consisting  of  inventory,  prepaid
     expenses, equipment and tradenames, to QR Merlin Acquisition LLC for $1,350
     in cash and the assumption of $39 in  liabilities.  In connection  with the
     sale, the Company recorded a pre-tax loss of $2,661, inclusive of $1,012 of
     expenses associated with the transaction and resulting from the exit of the
     cycling  business,  or $1,553  after-tax or $0.24 per diluted  share.  As a
     result of the  transaction,  a majority of the cycling  division  employees
     were severed and certain  long-lived assets used exclusively in the cycling
     business were deemed impaired.  Expenses  associated with the sale and exit
     of the cycling division are as follows:

      Transaction costs...........................................$    358
      Costs to exit facility and equipment leases and other
        non-cancelable contractual commitments....................     142
      Employee severance and termination benefits.................     210
      Writeoff leasehold improvements.............................      84
      Writeoff goodwill and other deferred charges................     218
                                                                  --------
      Total.......................................................$  1,012
                                                                  ========

     Included  in  accrued  expenses  at  January  5,  2001  are  $144 of  costs
     associated with the sale and exit of the cycling business,  which were paid
     in fiscal 2001.

     Net  sales  from the  cycling  division,  which are  included  in our Other
     Products segment,  represented  approximately 1.9% and 4.7% of consolidated
     net sales for  fiscal  years 2000 and 1999,  respectively.  The loss on the
     sale of the cycling  division is included in the income  before tax for the
     Other Products segment.

14.  Plant Closing and Other Non-Recurring Charges:

     On November 9, 2001, the Company announced the  cessation of  manufacturing
     and closing of the Bangor,  Maine  facility.  During the fourth  quarter of
     fiscal 2001, the Company  relocated the Asian sourcing and quality  control
     office  to  China,  resulting  in the  closure  of the  Taiwan  office.  In
     addition,  in the fourth quarter of 2001,  the Company  negotiated an early
     termination and exit of a retail store lease. As a result of these actions,
     the Company recorded  pre-tax  non-recurring  charges of $2,108,  or $1,277
     after-tax or $0.21 per share  after-tax.  The closing of the Bangor,  Maine
     facility in January 2002 resulted in the  termination of 101 employees,  of
     which 61 were  terminated  subsequent  to  January  4,  2002.  Assets  used
     extensively by the Bangor, Maine manufacturing  facility, the Taiwan office
     and the retail store have been written down to fair market value.  Expenses
     associated  with the plant closing and other  non-recurring  charges are as
     follows:
<TABLE>
<CAPTION>

                                                                        Bangor      Taiwan      Retail
                                                                        Plant       Office      Store       Total
                                                                       -------      ------      ------      -----

       <S>                                                             <C>          <C>         <C>        <C>
       Employee severance and termination benefits.....................$ 1,121      $  150      $     4    $  1,275
       Facility and equipment lease exit costs and
         other non-cancelable contractual commitments..................    228          --          200         428
       Writedown of machinery and equipment
         to fair market value..........................................    248          25           77         350
       Professional fees and other transaction costs...................     47          --            8          55
                                                                       -------      ------      -------    --------
         Total.........................................................$ 1,644      $  175      $   289    $  2,108
                                                                       =======      ======      =======    ========
</TABLE>


     Included  in  accrued  expenses  at  January  4,  2002 are  $1,461 of costs
     associated  with the plant  closing and other  non-recurring  charges,  the
     majority of which the Company  expects will be paid by the end of the first
     quarter of fiscal 2002.  The charge  recorded  for the Bangor,  Maine plant
     closing and the Taiwan office closing are included in income before tax for
     the Saucony  segment,  while the retail store closing is included in income
     before tax for the Other Products segment.

     As of January 4, 2002, our Bangor, Maine real property had a net book value
     of $357 and is included on the balance  sheet under the caption  "Property,
     plant and  equipment".  The Company  commenced  marketing  the  property in
     February 2002 and has received  market  valuations  for the property in the
     range of $875 to $1,250. Beginning in the first quarter of fiscal 2002, the
     Company will  reclassify  the real property to current  assets as "Held For
     Sale."


<PAGE>



15.  Geographic Segment Data:

     The following table summarizes the Company's  operations by geographic area
     for the years ended January 4, 2002,  January 5, 2001 and December 31, 1999
     and identifiable assets as of January 4, 2002, January 5, 2001 and December
     31, 1999:

                                           2001           2000          1999
                                           ----           ----          ----
       Revenues:

         United States................$   106,450    $   145,744     $   136,572
         Canada.......................      8,464          7,194           6,279
         Other international..........     17,450         14,982          13,036
                                      -----------    -----------     -----------
                                      $   132,364    $   167,920     $   155,887
                                      ===========    ===========     ===========
       International revenues:

         United States - sales to
           foreign distributors........     8,164          5,119          3,560
         Canada........................     8,464          7,194          6,279
         Other international...........     9,286          9,863          9,476
                                       ----------    -----------     -----------
                                       $   25,914    $    22,176     $   19,315
                                       ==========    ===========     ===========
       Inter-area revenues:

         United States.................$    1,228    $       870     $      828
         Canada........................     5,363          4,222          3,639
         Other international...........     4,211          5,077          4,803
                                       ----------    -----------     -----------
                                       $   10,802    $    10,169     $    9,270
                                       ==========    ===========     ===========
       Total revenues:

         United States.................$   107,678    $   146,614     $ 137,400
         Canada........................     13,827         11,416         9,918
         Other international...........     21,661         20,059        17,839
         Less: Inter-area eliminations.    (10,802)       (10,169)       (9,270)
                                       ------------   ------------    ----------
                                       $   132,364    $   167,920     $ 155,887
                                       ===========    ===========     ==========
       Operating income (loss):

         United States.................$    (2,565)   $    13,855     $  16,815
         Canada........................      1,304          1,080           879
         Other international...........      1,151          1,332           590
         Less: Inter-area eliminations.       (159)          (144)          (88)
                                       ------------   ------------    ----------
                                       $      (269)   $    16,123     $  18,196
                                       ============   ===========     ==========
       Identifiable assets:

         United States..................$    78,942    $    78,130     $ 79,288
         Canada.........................      5,222          4,119        5,452
         Other international............      7,403          9,346        7,626
         Less:  Inter-area eliminations.    (13,467)        (8,310)     (15,185)
                                        -----------    -----------    ---------
                                        $    78,100    $    83,285    $  77,181
                                        ===========    ===========    ==========

     Revenues are classified based on customer location.  Other revenue consists
     primarily  of royalty  income.  Inter-area  revenues  consist  primarily of
     inventory  shipments to the  Company's  international  subsidiaries.  These
     inter-area  sales are generally  priced to recover cost plus an appropriate
     mark-up for profit and are eliminated in the  determination of consolidated
     net sales and cost of sales.  Operating  income  consists of revenue,  less
     cost of sales, selling expenses, general and administrative expenses, plant
     closing and other  non-recurring  charges,  and the loss on the sale of the
     cycling division.


<PAGE>



16.  Operating Segment Data:

     The  Company's  operating  segments  are  organized  based on the nature of
     products. The operating segments of the Company are as follows:

     Saucony Segment

     Performance running, walking and outdoor trail footwear and multi-sport and
     triathlon athletic apparel sold under the Saucony brand name.

     Other Products Segment

     The Other Products segment  aggregates several product lines, none of which
     individually  meets the  criteria  as defined in SFAS 131 for a  reportable
     segment. Included in Other Products are: Hind multi-sport athletic apparel;
     Spot-bilt coaches,  official,  leather walking and workplace footwear; Hyde
     Authentics casual footwear; the Company's retail factory outlet stores; and
     the Company's former cycling division.

     The  following  table  summarizes  the results of the  Company's  operating
     segments for the years ended January 4, 2002,  January 5, 2001 and December
     31, 1999 and identifiable assets as of January 4, 2002, January 5, 2001 and
     December 31, 1999:
<TABLE>
<CAPTION>

                                                                     2001           2000           1999
                                                                     ----           ----           ----
          <S>                                                    <C>             <C>            <C>
          Revenues:
              Saucony............................................$  110,393      $ 146,596      $  133,262
              Other Products.....................................    21,971         21,324          22,625
                                                                 ----------      ---------      ----------
                                                                 $  132,364      $ 167,920      $  155,887
                                                                 ==========      =========      ==========
           Pre-tax income (loss):
              Saucony............................................$     (296)     $  18,507      $   18,965
              Other Products.....................................       (68)        (2,994)         (1,376)
                                                                 -----------     ----------     -----------
              Total segment pre-tax income (loss)................      (364)        15,513          17,589
              Provision for income taxes.........................       475          6,461           7,194
              Minority interest..................................       101             89              76
                                                                 ----------      ---------      ----------

           Net income (loss).....................................$     (940)     $   8,963      $   10,319
                                                                 ===========     =========      ==========

           Assets:
              Saucony............................................$   62,488      $  68,268      $   61,584
              Other Products.....................................    15,612         15,017          15,597
                                                                 ----------      ---------      ----------
                                                                 $   78,100      $  83,285      $   77,181
                                                                 ==========      =========      ==========
           Depreciation and amortization:
              Saucony............................................$    1,668      $   1,701      $    1,516
              Other Products.....................................       301            257             346
                                                                 ----------      ---------      ----------
                                                                 $    1,969      $   1,958      $    1,862
                                                                 ==========      =========      ==========
           Interest, net:
              Saucony............................................$      104      $     285      $      228
              Other Products.....................................        49            341             455
                                                                 ----------      ---------      ----------
                                                                 $      153      $     626      $      683
                                                                 ==========      =========      ==========
           Components of interest, net
              Interest expense...................................$      213      $     695      $      729
              Interest income....................................        60             69              46
                                                                 ----------      ---------      ----------
                Interest, net....................................$      153      $     626      $      683
                                                                 ==========      =========      ==========
</TABLE>


<PAGE>



17.  Concentration of Credit Risk:

     Financial  instruments which potentially subject the Company to credit risk
     consist primarily of cash, cash equivalents and trade receivables.

     The  Company  maintains  cash  and  cash  equivalents  with  various  major
     financial institutions.  Cash equivalents include investments in commercial
     paper of companies  with high credit  ratings,  investments in money market
     securities  and  securities  backed by the U.S.  Government.  At times such
     amounts may exceed the F.D.I.C.  limits.  The Company  limits the amount of
     credit  exposure  with any one financial  institution  and believes that no
     significant  concentration  of credit  risk  exists  with  respect  to cash
     investments.

     Trade receivables subject the Company to the potential for credit risk with
     customers in the retail and distributor sectors. To reduce credit risk, the
     Company performs ongoing evaluations of its customers'  financial condition
     but  does  not  generally  require  collateral.  Approximately  45%  of the
     Company's gross trade  receivables  balance was represented by 16 customers
     at January 4, 2002,  which exposes the Company to a concentration of credit
     risk.

18.  Financial Instruments:

     The carrying value of cash, cash equivalents,  receivables, and liabilities
     approximates  fair value.  The Company  believes  similar terms for current
     long-term debt and other notes payable would be attainable.  The fair value
     of marketable  securities is estimated  based upon quoted market prices for
     these securities.

     The Company  enters  into  forward  currency  exchange  contracts  to hedge
     intercompany   liabilities   denominated  in  currencies   other  than  the
     functional  currency.  The fair  value of the  Company's  foreign  currency
     exchange  contracts  is  estimated  based on foreign  exchange  rates as of
     January 4, 2002. At January 4, 2002 and January 5, 2001, the notional value
     of the  Company's  foreign  currency  exchange  contracts to purchase  U.S.
     dollars  was  $2,300  and  $1,100,  respectively.  At January  4, 2002, the
     notional value of the Company's foreign currency exchange  contracts to buy
     and sell Euros was $100 Euros and $96 Euros, respectively;  and also to buy
     $25 British Pounds  Sterling.  There were no outstanding  foreign  currency
     exchange contracts involving Euros or British Pounds Sterling at January 5,
     2001.  Consistent with the provisions of SFAS 133, all derivatives  must be
     recognized on the balance sheet at their then fair value and adjustments to
     the  fair  value of  derivatives  that are not  hedges  must be  recognized
     currently in earnings when they occur.

     The  Company  believes  that  these  contracts   economically  function  as
     effective  hedges of the  underlying  exposures  but, the foreign  currency
     contracts  do not meet the  specific  criteria  as defined in SFAS 133 thus
     requiring  the  Company to record all changes in the fair value in earnings
     in the period of the change.  The Company  recorded a charge of $35 against
     fiscal  2001  earnings  to  record  the loss on  certain  foreign  currency
     contracts.  At January 4, 2002 and January 5, 2001, estimated fair value of
     the  Company's   non-derivative   financial  instruments  approximated  the
     carrying value.


<PAGE>


19.    Quarterly Information:
<TABLE>
<CAPTION>
                                                                                   (Unaudited)

              2001                                                Quarter 1    Quarter 2    Quarter 3  Quarter 4(1)
              ----                                                ---------    ---------    ---------  ------------

              <S>                                               <C>          <C>          <C>           <C>
              Net sales.........................................$   43,693   $   35,491   $   31,488    $   21,589
              Gross profit......................................    13,699       11,853       10,307         6,284
              Net income........................................     1,346          176          362        (2,824)
              Earnings per share:
                Basic...........................................      0.22         0.03         0.06        (0.46)
                Diluted.........................................      0.22         0.03         0.06        (0.46)

              2000                                                Quarter 1  Quarter 2(2)   Quarter 3  Quarter 4(3)
              ----                                                ---------  ------------   ---------  ------------

              Net sales.........................................$   46,848   $   43,979   $   45,269    $   31,701
              Gross profit......................................    17,445       16,814       17,340        10,603
              Net income........................................     3,208        1,373        3,780           602
              Earnings per share:
                Basic...........................................      0.51         0.22         0.61         0.09
                Diluted.........................................      0.50         0.22         0.60         0.09
       --------------

         (1)  The Company closed its Bangor, Maine manufacturing facility,
              terminated and exited a retail store lease, closed its Taiwan
              office and incurred other reorganization related expenses. See
              Note 14 for further information relating to these transactions

         (2)  The Company sold substantially all of the assets and business of
              its cycling division during the second quarter of fiscal 2000. See
              Note 13 for further information relating to this transaction.

         (3)  The fourth quarter of fiscal 2000 consisted of 14 weeks.
</TABLE>

     Earnings  per share  amounts for each  quarter are  required to be computed
     independently and, as a result,  their sum may not equal the total earnings
     per share amounts for fiscal 2001 and 2000.

20.  Supplemental Cash Flow Disclosure

     The  following  table  summarizes   additional   disclosure  of  cash  flow
     information  for the years  ended  January  4,  2002,  January  5, 2001 and
     December 31, 1999:
<TABLE>
<CAPTION>

                                                                              2001          2000             1999
                                                                              ----          ----             ----
      <S>                                                                  <C>            <C>             <C>
      Supplemental disclosure of cash flow information:
           Cash paid during the period for:
              Income taxes, net of refunds.................................$     857      $   6,695       $   8,090
                                                                           =========      =========       =========
              Interest.....................................................$     205      $     605       $     688
                                                                           =========      =========       =========

          Non-cash Investing and Financing Activities:
              Property purchased under capital leases......................$     102      $      --       $     160
                                                                           =========      =========       =========

          Plant closing and other related charges..........................$   2,108             --              --
              Cash received................................................        3             --              --
              Severance and other payments.................................     (386)            --              --
                                                                           ----------     ---------       ---------
                                                                           $   1,725             --              --
          Non-cash portion:
              Accrued expenses.............................................$   1,461             --              --
              Property, plant and equipment................................      264             --              --
                                                                           ---------      ---------       ---------
                                                                           $   1,725             --              --
                                                                           =========      =========       =========

</TABLE>


<PAGE>





Report of Independent Public Accountants
On Schedules


To Saucony, Inc.:

We have audited in accordance with auditing standards  generally accepted in the
United States, the accompanying  consolidated  financial  statements of Saucony,
Inc.  for the year  ended  January 4, 2002  included  in this Form 10-K and have
issued our report thereon dated February 14, 2002.

Our  audit  was  made  for the  purpose  of  forming  an  opinion  on the  basic
consolidated  financial  statements  taken  as  a  whole.  Schedule  II  is  the
responsibility  of the  Company's  management  and is presented  for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements.  The schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
consolidated financial statements taken as a whole.


                                                           Arthur Andersen LLP



Boston, Massachusetts
February 14, 2002



<PAGE>



<TABLE>

                         SAUCONY, INC. AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

            For the Years Ended January 4, 2002, January 5, 2001 and
                               December 31, 1999

<CAPTION>
                             (dollars in thousands)



                                                                                  Additions
                                                                     Balance     charged to    Deductions      Balance
                                                                    beginning    costs and        from           end
                                                                    of year        expenses      reserve       of year
                                                                    -------        --------      -------       -------

<S>                                                               <C>            <C>           <C>           <C>
Year ended January 4, 2002:
  Allowance for doubtful accounts and discounts...................$   2,047      $  5,767      $   5,357     $   2,457

Year ended January 5, 2001:
  Allowance for doubtful accounts and discounts...................$   3,534      $  5,525      $   7,012     $   2,047

Year ended December 31, 1999:
  Allowance for doubtful accounts and discounts...................$   1,880      $  7,151      $   5,497     $   3,534


</TABLE>




<PAGE>


                                  Exhibit Index

Exhibit
Number                              Description


3.1        Restated Articles of Organization, as amended, of the Registrant
           are incorporated herein by reference to Exhibits 3.1 and 3.2 to
           the Registrant's current report on Form 8-K dated May 21, 1998.    *

3.2        By-Laws, as amended, of the Registrant are incorporated herein
           by reference to Exhibit 3.3 to the Registrant's Registration
           Statement on Form S-2, as amended (File No. 33-61040)
           (the "Form S-2").                                                  *

10.1       Revolving Credit Agreement between the Registrant and State Street
           Bank and Trust Company, dated August 31, 1998 (the "Credit
           Agreement"), is incorporated herein by reference to Exhibit 10.2
           to the Registrant's Quarterly Report on Form 10-Q for the fiscal
           quarter ended October 2, 1998.                                     *

10.2       First Amendment dated March 12, 1999 to the Credit Agreement
           is incorporated herein by reference to Exhibit 10.2 to
           the Registrant's Annual Report on Form 10-K for the fiscal
           year ended January 1, 1999.                                        *

10.3       Second Amendment dated April 20, 1999 to the Credit Agreement is
           incorporated herein by reference to Exhibit 10.3 to the Registrant's
           Annual Report on Form 10-K for the fiscal year ended January 5,
           2001.                                                              *

10.4       Third Amendment dated May 23, 2000 to the Credit Agreement is
           incorporated by reference to Exhibit 10.1 to the Registrant's
           Quarterly Report on Form 10-Q for the fiscal quarter ended
           June 30, 2000.                                                     *

10.5       Letter Amendment dated July 31, 2001 to the Credit Agreement is
           incorporated by reference to Exhibit 10.1 to the Registrant's
           Quarterly Report on Form 10-Q for the fiscal quarter ended
           July 6, 2001.                                                      *

10.6       Letter Amendment dated September 24, 2001 to the Credit Agreement
           is incorporated by reference to Exhibit 10.1 to the Registrant's
           Quarterly Report on Form 10-Q for the fiscal quarter ended
           October 5, 2001.                                                   *

10.7       Letter Amendment dated October 19, 2001 to the Credit Agreement
           is incorporated by reference to Exhibit 10.2 to the Registrant's
           Quarterly Report on Form 10-Q for the fiscal quarter ended
           October 5, 2001.                                                   *

10.8       Letter Amendment dated November 23, 2001 to the Credit Agreement.

10.9       Letter Amendment dated December 26, 2001 to the Credit Agreement.


10.10**    1993 Equity Incentive Plan, as amended, is incorporated herein
           by reference to Exhibit 10.8 to the Registrant's Annual Report
           on Form 10-K for the fiscal year ended January 2, 1998.            *

10.11**    Amendment No. 3 to 1993 Equity Incentive Plan, as amended, is
           incorporated herein by reference to Exhibit 10.5 to the Registrant's
           Annual Report on Form 10-K for the fiscal year ended December 31,
           1999.                                                              *

10.12**    Amendment No. 4 to 1993 Equity Incentive Plan, as amended, is
           incorporated by reference to Exhibit 10.1 to the Registrant's
           Quarterly Report on Form 10-Q for the fiscal quarter ended
           June 30, 2000.                                                     *

10.13**    VP Bonus Plan is incorporated herein by reference to Exhibit 10.19
           to the Form S-2.                                                   *

10.14**    1993 Director Option Plan is incorporated herein by reference to
           Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q
           for the fiscal quarter ended April 2, 1993.                        *

10.15**    2001 Employee Stock Purchase Plan is incorporated herein by
           reference to Exhibit 99.1 to the Registrant's Registration
           Statement on Form S-8 (File No. 333-65974).                        *

10.16**    Employment Agreement dated as of August 17, 2000, by and between
           the Registrant and John H. Fisher, is incorporated herein by
           reference to Exhibit 10.1 to the Registrant's Quarterly Report
           on Form 10-Q for the fiscal quarter ended September 29, 2000.      *

10.17**    Executive Retention Agreement dated as of August 17, 2000, by and
           between the Registrant and John H. Fisher, is incorporated herein
           by reference to Exhibit 10.2 to the Registrant's Quarterly Report
           on Form 10-Q for the fiscal quarter ended September 29, 2000.      *

10.18**    Employment Agreement dated as of August 17, 2000, by and between
           the Registrant and Charles A. Gottesman, is incorporated herein
           by reference to Exhibit 10.1 to the Registrant's Quarterly Report
           on Form 10-Q for the fiscal quarter ended September 29, 2000.      *

10.19**    Executive Retention Agreement dated as of August 17, 2000, by
           and between the Registrant and Charles A. Gottesman, is
           incorporated herein by reference to Exhibit 10.4 to the
           Registrant's Quarterly Report on Form 10-Q for the fiscal
           quarter ended September 29, 2000.                                  *

10.20**    Severance Agreement as of January 31, 2002 by and between the
           Registrant and Arthur E. Rogers.

21         Subsidiaries of the Registrant.

23.1       Consent of Arthur Andersen LLP.

23.2       Consent of PricewaterhouseCoopers LLP.

99.1       Letter regarding confirmation of Arthur Andersen LLP representations.

--------------------

*             Incorporated herein by reference.

**            Management contract or compensatory plan or arrangement filed
              herewith in response to Item 14(a)(3) of the instructions to Form
              10-K.